SpaceX Analysis
Executive Summary
As a relatively new entrant in the aerospace industry, SpaceX understands that they must be innovative and price competitively to challenge the existing competition. They practice several tactics to remain competitive.
Vertical integration
Makes potential suppliers compete for attention - SpaceX will make something in-house if they cannot find the right supplier
Tighter control of existing processes
Undercutting competitors on price by slimming profit margin per launch, which has both benefits and drawbacks
Benefits: handily beats competition on price, launching more rockets gives SpaceX increased practice
Drawbacks: SpaceX needs to launch as many rockets per year as possible to stay profitable, if they continue slimming profit margins, they will need even more launches per year to maintain the same year-over-year revenue growth
Because SpaceX is a privately traded company, much of it's financial and supply chain details are unknown to the general public
Despite being privately owned, SpaceX has many eager investors, including the likes of Fidelity and Google
SpaceX is playing the long game, as is typical in the aerospace industry, they know that breaking even on a project or investment may take many years
An engineer approached Elon Musk about purchasing a part, called an actuator, with a hefty $120,000 price tag. Musk allegedly replied:
"That part is no more complicated than a garage door opener. Your budget is $5,000. Go make it work.”
Introduction
How does one manage the supply chain of a firm, which by its very nature, is developing products which are not only incredibly complicated, costly, and massive in scope, but are in many instances products which utilize newly untested innovations? At SpaceX, merely launching rockets into space is not enough. They must be able to do their rocket science more resourcefully, and reduce costs compared to their competitors, who needless to say, are also in the business of rocket science. Space flight isn't merely intrinsically complicated, it's new. Automobiles, like space shuttles, are complicated machines. Perhaps not as complicated, but complicated enough to make them a difficult, highly regulated industry. Automobiles require engineering, government oversight and approval, a complex supply chain with several levels of vendors, and many safety tests. But automobiles aren't new. Spaceflight is. SpaceX proved that they could make rockets at a fraction of the cost of competitors, but not before inadvertently demonstrating what catastrophes can result from faulty rockets. Small mistakes end up costing millions of dollars or more, and put lives at risk. As of this writing, no SpaceX mission has resulted in a human fatality, but the possibility remains very real.
Analysis
One of the critical factors separating SpaceX from competitors is its vertical integration. By making more component's in-house, SpaceX is able to centralize control of development while simultaneously creating a more competitive state for their suppliers (Key Part). A rather potent example occurred when an engineer approached Elon Musk about purchasing a part, called an actuator, with a hefty $120,000 price tag. Musk allegedly replied: "That part is no more complicated than a garage door opener. Your budget is $5,000. Go make it work" (Key Part).
Going to such lengths in order to cut costs is what makes SpaceX competitive, in fact, it is part of their overall strategy for developing competencies within the firm. SpaceX needs to launch more rockets than their competitors due to slimmer profit margins, however, this gives them more practice to hone their craft (Forbes). In fact, trends indicate that SpaceX is continually slimming profit margins, while increasing the number of launches exponentially, resulting in net gains for the firm. Much of this comes from SpaceX's unique innovations is reusable rocket technology, saving them untold amounts of expense (Trefis).
Created in Excel, using data from Trefis
Given the lack of publicly available data, calculating concrete numbers for SpaceX can be a challenge. In order to estimate net profit over time, the following assumes even year-over-year costs.
Highlighted numbers are assumptions. Therefore, this should be taken into consideration. However, assuming even costs, we can estimate the net profit year-over-year. Considering SpaceX is focused on expanding operations, it is worth noting that assumed costs are likely not going to remain stable for some time, even with a focus on cost-cutting. Using the calculated assumptions above, the graph below can be generated.
Again, much of this image is conjecture based on what bits of information are publicly available.
Conclusions
Due to a lack of publicly available information, much of this analysis may be too far-flung into the realm of speculation and estimation. SpaceX is not a publicly traded company, and as such, it was challenging to find verifiable data on it's financials and supply chain. The overall strategy of SpaceX, however, is abundantly clear. They seek to internalize capabilities, often building parts which are higher quality than competitors (Key Part). One particularly interesting finding is that many aerospace companies actually shun innovation. Why? The common excuse is: "we can't make a change because then we will need to re-qualify the hardware." Aerospace companies often impose outdated restrictions on their suppliers, and purposely avoid innovating, often using "increasingly obsolete components." (Key Part) SpaceX's Falcon Heavy rocket cost approximately a mere 35% as much as competitor's rockets do to make, largely due to using cheaper materials and internalizing much of the supply chain, though not all. Some suppliers do work with SpaceX, but they are typically forced to be competitive to hold SpaceX's attention (Key Part). What SpaceX is doing is shaking up an outdated industry, one which purposefully stagnates due to regulations and taxpayer funding. Private investors are taking note. SpaceX has raised $5.9 billion in total funding as of February 2021 (Craft.co), and they have captivated the interest of private investors worldwide (CNBC). Big names behind SpaceX investments include the likes of Fidelity and Google, despite the lengthy timeline for a return on investment (CNBC). Elon Musk is even quoted asking one of them "Are you ready not to see a return for fifteen years," to which the venture capitalist Laetitia Cayeux actually replied: "Yes, of course." So SpaceX is in need of not just any investors, but patient ones like Cayeux willing to wait many years to see a return on said investment (CNBC).
References
Craft. “SpaceX Company Profile.” Craft.co, craft.co/spacex.
Partnership, The Keystone. “How Elon Musk and SpaceX Have Revolutionized the Supply
Chain.” Keystone Partnership, Keystone Partnership, 25 Oct. 2018, www.thekeypart.com/post/time-is-money.
Team, Trefis. “Revisiting SpaceX's $36-Billion Valuation After Its First Manned Mission.”
Forbes, Forbes Magazine, 2 June 2020, www.forbes.com/sites/greatspeculations/2020/06/02/revisiting-
spacexs-36-billion-valuation-after-its-first-manned-mission/?sh=5bd72d0244fb.
Team, Trefis. “What Is Driving SpaceX's Revenues & Valuation?” Trefis,
dashboards.trefis.com/no-login-required/j63oKJzk?fromforbesandarticle=trefis200602.
Sheetz, Michael. “Latest SpaceX Valuation Shows 'an Unlimited Amount of Funding' Available
in Private Markets, Equidate Says.” CNBC, CNBC, 13 Apr. 2018, www.cnbc.com/2018/04/13/equidate-spacex-
27-billion-valuation-shows-unlimited-private-funding-
available.html#:~:text=In%202015%2C%20SpaceX%20raised%20%241,percent%20stake%20in%20the%20comp
any.
Smith, Rich. “Wall Street Journal Spills the Beans on SpaceX's Big Loss.” The Motley Fool, The
Motley Fool, 24 Jan. 2017, www.fool.com/investing/2017/01/24/wall-street-journal-spills-the-beans-on-
spacexs-bi.aspx.
