In a vividly titled piece that got no small amount of attention among space investors earlier this month, SpaceNews warned of a coming "bloodletting" in the space industry. Demand for space launch continues to grow despite the lingering effects of the pandemic, and despite the looming recession. And yet companies that specialize in launching small satellites in particular are "struggling to make money," warns SpaceNews, and not all of these companies will survive.
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Key Data Points
Small satellites, big business
2021 gave investors several new ways to invest in space, as multiple so-called "space SPACs" went public in reverse mergers through special-purpose acquisition companies. Following in the footsteps of space tourism trailblazer Virgin Galactic (SPCE +17.13%), small-rocket specialists Virgin Orbit (VORB +0.00%), Rocket Lab (RKLB +34.22%), and Astra Space all conducted IPOs to raucous applause.
Investors bet that as the price of space launches decreased, demand for space launch services would increase -- and they were right to do so. Market researchers generally agree that the size of the worldwide space launch market approached $17 billion in 2022, and will grow close to 15% annually -- several times faster than global GDP -- over the next five years. As Arianespace Vega head Marino Fragnito told attendees at the SmallSat Symposium in Mountain View, California, on Feb. 7, over his 30 years in the space industry he has "never seen so much business" as today. "I have never seen so much demand for launches," he added.
Problem is, one particular space company is doing its darnedest to vacuum up as much of this business as possible for itself, leaving only scraps for the rest of the industry. The culprit, of course, is SpaceX.
Just as I predicted back in 2019, SpaceX saw the potential of the growing market for small satellite launches. Not wanting to miss out on the gold rush, it figured out how to use its own large rockets to launch many, many small satellites at once -- at prices too low for other companies to compete with.
SpaceX groups scores of small satellites together onto a single Falcon 9 reusable rocket, and then launches them into orbit en masse in regularly scheduled "Transporter" launches several times a year.
At first, SpaceX floated a price-per-kilogram of $15,000 to launch payloads into space aboard Transporter. With the cost of small rocket launches falling, however, it was conceivable that some of its rivals might eventually be able to match that offer. Rocket Lab, for example, with a $7.5 million price tag to launch 300 kilograms, is already getting close. According to the data crunchers at newspace.im, for example, Relativity is promising prices under $14,000, while Phantom Space says it will be able to launch for less than $11,000.
And granted, neither Relativity nor Phantom Space has put a rocket in orbit yet, but just in case they do, one month into the program, SpaceX cut its price even further -- to just $5,000 per kilogram.
And nobody but nobody can compete with $5,000 per kilogram to low Earth orbit.
Big business for big rockets
The result, complains Rocket Lab CFO Adam Spice, is that SpaceX's ultralow prices have "suppressed prices in the market" and "taken a lot of volume off of the market." If the $5,000 price tag on a kilo of payload at SpaceX is now the reference price to which customers compare all other rocket launch price lists, there's a real possibility that nobody else will make money, opines Fragnito, and a lot of small-rocket launchers could go out of business.
And it gets worse.
Not only did SpaceX cut the legs out from under its competition when it cut its prices by two-thirds back in 2019. In the time since, SpaceX has turned around and raised prices by about 10%, to $5,500 per kilogram -- and its rivals still can't compete with that! At least not for generic, one-size-fits-most, mass launches of dozens upon dozens of satellites at a time, all into similar orbits.
The upshot for investors
So how will any space companies that are not named SpaceX survive? One solution might be to become more like SpaceX. Rocket Lab is building a bigger rocket, the Neutron, that could launch larger constellations of small satellites at lower prices, for example.
Another option might be to focus on what SpaceX can't do. By offering midair launches from an airplane that can take off from almost any large airport around the globe, Virgin Orbit can essentially bring the spaceport to its customer, shortening the logistics chain from manufacturing to orbit, and make available orbits SpaceX can't reach as well.
A third option might be to pivot the business entirely, from rocket launcher to rocket-parts maker. That might be the route Firefly ends up taking as a supplier of rocket engines to Northrop Grumman.
It won't be easy for any of these companies to compete with SpaceX's ultralow prices. But one thing's for certain: If they don't find a way to compete, there's going to be a lot fewer space companies to invest in few years from now than are currently around today.
