Why Elon Musk’s SpaceX Is Finally Ready to Rocket
Business + Economy

Why Elon Musk’s SpaceX Is Finally Ready to Rocket


By most measures, SpaceX has enjoyed a banner 2016. In the first half of this year, the company took critical steps toward proving it can reliably retrieve and reuse its first-stage rocket boosters, successfully landing rockets on a floating drone ship in the Atlantic Ocean three separate times. It broke a monopoly one of its chief competitors held on U.S. military satellite launches. It spelled out plans to significantly boost the frequency with which it launches its workhorse Falcon 9 rockets and to vastly expand its capability by flying its larger, more powerful Falcon Heavy rocket for the first time.

Each of those developments has implications for SpaceX's core business, but perhaps none stands poised to transform human spaceflight and the larger, commercial-space marketplace quite like the company's announcement in April that it is working with NASA to send an unmanned mission to the surface of Mars as soon as 2018 — a mission that could eventually culminate in the first manned mission to the Red Planet. That historic collaboration could see a private company — rather than a government agency — spearhead the exploration of a celestial body for the first time.

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Speaking at last week's Code Conference, Musk said SpaceX should probably be able to launch a manned mission to Mars by 2024 with arrival in 2025.

It's a challenge unlike any ever faced by the company, but since its founding by Elon Musk in 2003, the company has repeatedly defied expectations by setting lofty targets and turning the seemingly impossible into the mundanely routine.

As Musk has said in one of his famous quotes: "The first step is to establish that something is possible; then probability will occur."

It's no wonder the company has captured the imagination of investors and market watchers. SpaceX has contracts worth $4.2 billion for hauling U.S. astronauts and supplies to the International Space Station, and Pentagon officials have said they expect to certify the company for military payloads. In January, Google and Fidelity Investments together invested $1 billion in the company for a 10 percent stake.

Driven by Musk's infectious ambition, SpaceX engineers have continuously chipped away at the high cost of launching payloads to space. By manufacturing all of the critical pieces of its rockets in-house, it can carefully control costs and its own supply chain. By devising a means to pilot its costly first-stage rocket boosters safely back to Earth — boosters that were previously jettisoned and destroyed after a single use — the company is on the verge of cutting the cost further still, making its services even more attractive to customers while helping to increase the pace at which the company can launch payloads into orbit.

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In doing so, SpaceX has upended its competitors' business models, creating a true existential threat to legacy aerospace companies that once went unchallenged in the commercial launch market. It also earned the company the top spot in CNBC's Disruptor 50 rankings in 2014 and the No. 2 position last year. With so much going for it, its drop to the 30th position in CNBC's 2016 Disruptor 50 rankings may come as something of a surprise.

SpaceX's slide to the 30th spot stems from various factors. (Find the methodology behind the 2016 CNBC Disruptor 50 rankings here.) Going forward, the company will face pressure from both new competitors, like Jeff Bezos' Blue Origin, and entrenched rivals, like the Boeing-Lockheed Martin joint venture United Launch Alliance (ULA). Its Mars agenda and its ability to compete for many future launch contracts will rely on a successful first flight of the Falcon Heavy launch vehicle later this year.

Meanwhile, the company will need to demonstrate the ability to significantly boost its launch frequency to get more rockets into orbit with shorter turnaround between launches — all while avoiding mishaps like the one that grounded SpaceX's entire fleet for several months last June when a Falcon 9 rocket bound for the International Space Station disintegrated shortly after launch.

But as is often the case with companies that operate at the very edge of what's possible, SpaceX's descent from the top of our list is linked largely to expectations. Having thoroughly upended the antiquated space launch industry, SpaceX now finds itself in a challenging position. The company that rewrote the rules for the commercial space industry now has no one left to disrupt but itself. To do so, SpaceX will have to simultaneously establish itself as the reliable, low-cost launch option that customers want while continuing to push the technological envelope and take new risks.

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That makes the second half of 2016 an absolutely critical period for the world's formerly most-disruptive company.

"I think probably their biggest challenge is they've raised the bar so high that they may not be able to meet the expectations they've created," said Marco Caceres, a senior analyst and director of space studies at aerospace consultancy Teal Group. "When you get on a roll, people, the government, customers, they all start to think you can do no wrong. But this is hardware, and SpaceX is taking it to another level through the reusability aspect, through launch frequency. And inevitably, as happens with all high-tech ventures, there's going to be failures."

Yet the pressure on SpaceX to continue its string of successes is high. The company has a backlog of more than 40 missions on its launch manifest, representing billions of dollars in potential revenues for both SpaceX and the companies that depend on the satellites SpaceX delivers to orbit. NASA relies on SpaceX to deliver supplies to the International Space Station and wants SpaceX rockets to ferry American astronauts into space before the end of the decade.

It is also one of only two companies certified to launch satellites for the U.S. Department of Defense. The other is United Launch Alliance, which faces a critical shortage of the Russian-made RD-180 rocket engines that power its Atlas V rockets due to sanctions leveled against Russian companies following that country's annexation of Crimea in 2014. While Congress may overturn the current ban on RD-180 imports, the Pentagon still expects SpaceX to launch some portion of its critical defense satellites.

Related: SpaceX breaks Boeing-Lockheed monopoly on military space launches

By manufacturing all of its own critical hardware, SpaceX has managed to avoid those kinds of external geopolitical and market factors and allowed it to undercut its competitors on price, in some cases offering trips to orbit for less than half the cost of competitors like ULA.

But even as SpaceX has placed extreme downward pressure on the cost to launch, competition looms. ULA and Blue Origin, as well as small satellite launch start-ups, like Rocket Lab and Firefly Space Systems, are developing lower-cost launch vehicles that could nibble away at SpaceX's market dominance should the company sit still for too long.

"We've got some pretty interesting players out there that are pushing SpaceX to be even more assertive with launch," said Richard Rocket, CEO of space industry research firm NewSpace Global. "We're talking about Blue Origin, obviously; we're talking about ULA. Airbus is very interested in figuring out how they can potentially build a successful, reusable launch vehicle that can compete directly with SpaceX. And you're seeing some other new entrants that could potentially cut into SpaceX's business."

While much has been made of Blue Origin's launching and successful landing of its own rocket booster, SpaceX and Blue Origin are at least for now developing very different vehicles for very different markets, Rocket said. But the two companies do compete with each other — as well as with ULA, Airbus Safran Launchers (the French rocket concern that produces rockets for French commercial launch company Arianespace) and Orbital ATK — for engineering talent. That competition could soon expand to launch services as those companies develop new rockets to compete with SpaceX's Falcon 9.

SpaceX has also struggled somewhat to decrease the turnaround time between its satellite launches. SpaceX president Gwynne Shotwell told an audience at a space conference earlier this year that she expects the company to launch 18 rockets by the end of this year. That would mark a threefold increase in launches over last year and require the company to launch an average of two rockets per month for the remainder of the year.

But the number of rockets SpaceX launches is less important than its consistency, Caceres said. If the company can launch at regular intervals while avoiding major delays or technical failures while simultaneously integrating its recovered, refurbished rocket boosters into its supply chain, it could drive down the cost of launch even further, perhaps by another 50 percent or more.

That kind of discount on the current cost of space launch would go beyond what we've come to define as "disruption," Caceres said.

"SpaceX already offers the lowest launch cost by far," he said. "And if you can increase the launch pace without failures, if you can really push the envelope on the reusability aspect, if you can really cut the cost in half — do that and you've revolutionized the industry overnight."

This article originally appeared on CNBC. Read more from CNBC:

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