Reusable Rockets To Create Multiple New Markets By Lowering Costs Drastically

The Reusable Rockets Revolution

Putting anything into the Earth's orbit has always been a high-tech and expensive endeavor. And this is even more true for reaching other celestial bodies like the Moon or Mars.

The main reason was the fact that until recently, all rockets were a one-time-use system. Imagine what the price of air travel would be if airplanes were destroyed after every single flight. It would be so prohibitively expensive that only the government could afford it, from research institutes to the military, and maybe a special commercial venture able to justify the cost.

The prototype of the space shuttle was supposed to be a step toward reusability. But in practice, the refurbishing costs and time required made it not so different from rebuilding it from scratch.

And until recently, this was exactly the same for access to space and satellites. But then Elon Musk's SpaceX arrived alongside with truly reusable rockets. The first refurbishing of the Falcon 9 rocket took a while, but with the process now established and more experience, SpaceX progressively managed to get its rocket ready again 10 times quicker than the average time it took for the space shuttle.

It is worth noting that SpaceX's reusability is with the rocket booster, something that was never reused before, so the comparison to the space shuttle is still unfair to SpaceX's achievements.

Source: Ark Invest

Reusable Means Collapsing Costs

Making the rocket reusable completely changed the cost equation for reaching the orbit. The complex and expensive fuel tanks, injection systems, controls & rocket nuzzles can now amortize their manufacturing costs over dozens of commercial launches.

As a result, the launch cost, measured in $/kg, has decreased by more than 10x (an order of magnitude). And another cost reduction of the same scale is expected in the next years.

Source: Ark Invest

Another factor in SpaceX's ground-breaking efficiency is how long it takes between Falcon 9 reuses. To go back to the plane analogy, even if reused, a plane ticket would be a lot more expensive if it took half a year to get it back into the air. Simply put, you would need to build many more planes for the same amount of travel (and revenues).

The Falcon 9 rocket used to take 200+ days to be reused in 2016 and barely 50+ days in 2023.

Source: Ark Invest

Altogether, the success of the Falcon 9's reusability and flight frequency has led to the situation where 80% of the mass put into orbit in 2023 was lifted by SpaceX, outmatching 5-to-1 Boeing + Lockheed + China + Russia + the EU +  Japan + India together.

Source: Ark Invest

The LEO Constellation Opportunity

Not all satellite orbits are created equals. Many satellites are located in geostationary orbits (GEO), which allow them to stay steadily above the same area of Earth. This is very useful for weather satellites, for example.

GEO is very far from Earth, 22,000 miles away. This provides one advantage: the satellites will fall back to Earth only in 1,000+ years.

Source: Ark Invest

GEO is, however, a very bad option for telecommunications. The massive distance between Earth and the satellite makes it unavoidable that there will be serious latency. So, while this is okay for unidirectional signals (like TV programs), getting a good quality phone or Internet service this way is impossible, with a 700 ms latency. The fact that GEO spots are also rare and precious compounds the problem.

In comparison, a constellation of small and lightweight satellites in Low-Earth Orbit (LEO) can achieve a latency as low as 40ms, being only 300 km above the Earth’s surface.

Source: Ark Invest

SpaceX is already building such a constellation under the brand Starlink, which has already revolutionized Internet access for remote locations with poor services or not covered at all by land-based phone/Internet providers.

Since its launch in February 2021, Starlink exponentially acquired more clients, with 2.3 million users in December 2023.

Source: Ark Invest

Space-based Internet is becoming increasingly attractive also thanks to the declining cost of receiving antennas thanks to mass production. Starlink's antenna went from several thousand dollars initially to just $599, with a goal of $450 by 2028.

The market for this service is enormous, with 600 million people without access to broadband Internet and millions of RVs, recreational boats, ocean-going ships, and commercial airplanes being potential clients. And of course, most of the Earth's population is equipped with a smartphone.

Besides SpaceX's Starlink, many other LEO Internet constellations are launching or in development, including:

• Jeff Bezos-backed Blue Origin’s Project Kuiper (3,236 satellites)
• OneWeb’s constellation (650 satellites after exiting bankruptcy in 2021)\
• Russian’s Efir (600 satellites by 2025, probably more for military application)
• China’s GW and G60 (respectively, 13,000 and 12,000 planned Internet satellites).

Reusable Starship

SpaceX being ahead in reusable rockets gave it a pole position in building its LEO telecom satellite constellation, with 12,000 satellites to be deployed at first (5,289 already up) and maybe as many as 42,000 in its final version.

However, the quick decay of LEO orbits (translating into a 5-year lifespan for Starlink satellites) means continuous launches are required to keep this number stable. And the Falcon 9 is simply a little too small for the job.

Luckily for SpaceX, the upcoming Starship has 5 times the payload capacity of Falcon 9. Even then, maintaining Starlink will require a Starship launch every 3.5 days. In itself, this will help SpaceX build a truly massive assembly line for Starship, reducing even further the costs of individual rockets.

Source: Ark Invest

Orbital Launch Market Structure

Because of the advantage in volume that Starship will enjoy, the space launch market may end up dominated by a few actors with complex, massive rockets. Certainly, this seems to be the direction the market is already taking, with smaller launch providers struggling to reach commercial viability. Since 1996, most small launch providers have failed, got canceled, or are dormant. And the market might be crowded, with 101 providers either operational or in development.

Source: Ark Invest

So, betting on the smaller actors might be risky for investors. At the same time, it can be the only option when the largest actors are either diversified defense companies (like Boeing) or privately listed, like SpaceX.

An Unlimited Market?

This does not change the fact that the orbital launch market is highly attractive. Unlimited economic growth is probably not achievable with just Earth's limited resources.

But space is big. Cheaper access to space opens the possibility for plenty of new ventures.

The first one is the building of Moon bases, which are likely to happen in the context of a new space race between the West and Russia+China, each with their own plans for a Moon base in the next decade.

Another option is asteroid mining, with some asteroids containing literal mountains of gold, platinum, palladium, and other rare and valuable minerals. In fact, just one asteroid, Psyche, might be worth as much as $10 quadrillion at current mineral prices.

Helium-3 deposits on the Moon might be a very precious resource as well.

Closer to home, Starship and similar reusable rockets might become the new method for quick “air” travel, thanks to reaching hypersonic flight speeds when exiting the atmosphere. Considering a 44,000$ ticket, ARK Invest estimates that this could represent a $350B market potential for delivering 3 3-hour flights compared to current 14h long-haul passenger flights.

Source: ARK Invest

Other activities in space, like space tourism or moving polluting industries into space, are also likely to develop if access to space becomes cheap enough. This will increase the industry's scale and reduce costs even further.

Lastly, military applications could be another revenue driver. Starship hypersonic deliveries are of strong interest to the Pentagon. And a military-only parallel broadband network similar to Starlink, the Starshield project, is also under discussion.

And of course, there is the true life goal of Elon Musk, the colonization of a whole new planet, Mars. You can read more about how a Martian economy would look like in our article “The Future Martian Economy”.

Just hypersonic flights and satellite connectivity revenues could generate respectively $130B and $35B by 2030, with plenty of room to grow. Adding the other potential businesses makes space travel a good candidate for being one of the major growth drivers of the late 2020s and 2030s.

Reusable Rocket Stocks

Unfortunately for most investors, SpaceX is a privately-listed company. So only accredited investors are likely to be able to get their hands on SpaceX shares.

The same is true for Blue Origins, as well as Chinese LandSpace (which recently beat SpaceX in developing successfully a methane-powered rocket).

And this might be permanent, as Elon Musk said that he would like to never have a publicly-listed company again after Tesla.

“At SpaceX we never think about the quarter. We never think about it,” he said. “We don’t think about the stock price. There’s immense pressure on a public company to not have a bad quarter. This can result in a less efficient operation where you’re going to great lengths at the end of the quarter to not disappoint people. That’s just how it goes.”

Even the Starlink IPO might have to wait for the company to have more of a “boring telecom” profile than the current growing startup setup.

Musk said to Cathy Wood, head of Ark Invest:

“I don’t think it’s worth going public until you have an extremely stable and predictable revenue stream,” he said. “If your cash flows are extremely stable and predictable, at that point going public is less of an issue.” Elon Musk

1. Rocket Lab

Rocket Lab is one of the most serious contenders in the reusable rocket market. The company has initially focused on small rockets, with the Electron launch system (320 kg of payload), which is progressively being turned into a partially reusable rocket. So far Electron has deployed 177 satellites in 44 launches.

Later on, Rocket Lab is looking at creating a medium-size reusable rocket, the Neutron, comparable to Flacon 9 (8,000 kg to LEO in fully reusable mode, 1,500 kg to Mars or Venus). The Neutron will be powered by a methane-burning rocket engine (like Starship), which seems to become the trend for the next generation of rockets.

The company is remarkable for its fully vertically integrated satellite manufacturing process, allowing it to optimize costs and design speed.

This resulted in multiple contracts with NASA & the US government, including a $515M military satellite contract. and a civilian $143m contract for Globalstar.

Rocket Lab is also a major manufacturer of solar panels for satellites after its 2022 acquisitions of SolAero Technologies, with 1000+ satellites powered by these panels, and 4MW solar cells manufactured in total.

Source: Rocket Lab

For now, its launch system is reliant on outside suppliers, but a series of strategic acquisitions should change that, replicating in the launch system the vertical integration already achieved in satellite design and manufacturing.

The company is also looking at the possibility of a telecom LEO constellation to generate recurring revenues. It is also contributing to research for in-space manufacturing with Varda Space Industries and orbital debris inspection.

While SpaceX had Elon Musk's business talent to develop its technology from scratch, Rocket Lab used a mix of R&D and acquisitions to vertically integrate the technology required. This has proven very successful in satellite manufacturing, and they are now looking to replicate this strategy for reusable rockets.

Considering the existing cash flow from satellite production & the Electron successes, Rocket Lab is a good candidate to catch up with SpaceX.

2. Virgin Galactic

The company founded by Richard Branson is focused on space tourism.

The tickets are in the $250,000-450,000 range, with a long waiting list. The first customers seem to be ecstatic with their experience:

“I always knew it was going to be the most extraordinary experience of my life. I always knew that. And people kind of told me it was going to be. But then when it is… and it's on another level to the experience you thought you were going to have… then it's very difficult to explain.”

“This has been the best day of my life, the most sensational day of my life. And you can’t get any better than that. It exceeded my wildest dreams.”

Virgin Galactic has been working on improving its unit economics, with a new launch system, the “Delta”, able to carry 6 passengers instead of 4, and to perform 8 flights/month instead of just one.

Together, these 2 improved metrics should boost revenue per unit by 12x, with a payback time of less than 6 months for each Delta shuttle. The Delta flight test is expected in mid-2025.

Source: Virgin Galactic

Markets were concerned when it was announced that Branson would not invest further into Virgin Galactic. Especially following the layoff of 185 employees and a pause of space flights in 2024, to wait for the arrival of the Delta shuttle and reduce cash burn speed.

Still, Virgin Galactic is forecasted to have enough cash to run until 2025 or 2026. So if the development of the Delta flight system goes smoothly (a risky proposition in the aerospace industry), the company should be able to focus on restarting and growing cash flow, with a system that is profitable on a unit basis. And bring the company to turn cash flow positive in 2026.

Source: Virgin Galactic

(It should be noted that Virgin Galactic is different from Virgin Orbit. Virgin Orbit filed for bankruptcy in April 2023, and provided launch services for small satellites, with Rocket Lab acquiring the company's Long Beach facility, manufacturing, and tooling assets).

The recent bankruptcy of Virgin Orbit and distancing from Virgin Galactic by founder Richard Branson has damaged the company's image with investors, resulting in a plummeting stock price in 2023.

At the same time, the previous customers' satisfaction, a clear plan for a profitable design (Delta shuttles), and a long waiting list of potential clients show that the company might still be viable even without raising more funds. So a lot will rely on the success of developing, manufacturing, and operating the Delta shuttle and achieving it before the end of 2025.

If this is the case, the much lower valuation would create an opportunity for investors to grab company shares at a discount.