Executive Summary:
The business model of SpaceX is primarily centered around reusing its rockets and keeping most of the supply chain in-house.
SpaceX makes money from launching objects and people into space, offering broadband internet, providing research services, and by selling merchandise.
What Is SpaceX?
SpaceX, or Space Exploration Technologies Corporation, is a spaceflight company that manufactures a variety of different rockets.
The company, headquartered in Hawthorne, California, was founded in 2002 by tech entrepreneur Elon Musk.
Its stated mission is to make “humanity multiplanetary” and thus be able to colonize the Moon, Mars, and possibly beyond.
The first step to fulfilling that mission has been the introduction of its reusable rockets, namely the Falcon 9 and Falcon Heavy.
The models enable SpaceX to ship all kinds of payloads, ranging from satellites to animals, into earth’s (low) orbit.
On top of that, SpaceX can potentially mount its Dragon capsule, which enables it to send humans into space as well. In 2020, for example, SpaceX flew NASA astronauts to and from the International Space Station (ISS).
However, all of these models pale in comparison to Starship, a rocket that is meant to eventually transport humans and payloads to the Moon as well as Mars. The Starship is still under development, though.
SpaceX, apart from putting other objects into space, is currently setting up its own constellation of satellites in low-earth orbit (LEO), too.
Dubbed Starlink, the system offers high-speed and low-latency broadband internet in remote locations and on moving objects such as RVs or planes. The Starlink system will eventually comprise close to 30,000 satellites. Currently, around 3,300 are operational.
The SpaceX Business Model Explained
The business model of SpaceX is currently based on sending goods and people into space and charging both governments and companies for that service.
At the center of that service stands the firm’s reusable rockets, which leads to significant cost savings and thus allows SpaceX to under-price versus its competitors.
Let’s take a closer look at not only the reusability aspect but all the other factors that underpin the business model strategy of SpaceX.
Reusability & Scale Economies
To say that SpaceX has revolutionized an entire industry is an understatement that doesn’t do the company and its employees any justice.
To understand why let’s take a quick look at the history of launching things and people into space. Between 1970 and 2000, the cost of launching a kilogram into space largely remained unchanged.
On average, it would cost $18,500 per kilogram. NASA’s own Space Shuttle, first launched in 1981, incurred costs of $54,500 per kilogram. Missions would regularly be costing $1 billion and beyond.
In total, NASA spent an estimated $209 billion on the program alone – most of which came out of taxpayer pockets.
Additionally, two of the 134 Space Shuttle launches resulted in tragedy, killing 14 astronauts along the way.
But why were launches costing this much? As a government and thus not a profit-driven entity, NASA’s representatives were simply not incentivized to figure out a more economic solution.
This led to a very inefficient setup as more and more suppliers were entrenching themselves into the bidding process for each contract. As a result, when one party in the supply chain began to mark up their prices, the others would follow suit.
Another huge reason for the program’s exorbitant cost was the fact that a significant portion of the rocket’s parts, such as its external tank, would be thrown away after each mission.
Therefore, NASA had to procure, manufacture, and assemble these parts within a supply chain environment that was getting costlier each year.
Lastly, many of the parts it sourced were simply outdated technology that wasn’t meant to last too long anyways, thus adding to the waste.
Enter Elon Musk who allegedly started SpaceX after a Russian rocket designer spat on his shoes because the Tesla founder wanted to purchase some of their rockets. In 2010, 8 years after founding the company, the Falcon 9 recorded its first successful commercial launch.
And a mere 5 years later, SpaceX completed the first spaceflight of a reusable rocket during an orbital launch. The successful launch ushered in a new era that would lead to SpaceX dominating the launch service industry.
According to Oxford professor Bent Flyvbjerg, loading a kilogram on SpaceX’s Falcon Heavy costs around $1,400. This is not only 44x cheaper than NASA’s Space Shuttle rocket but also significantly outperforms SpaceX competitors, which include the United Launch Alliance (ULA) or Rocket Lab.
Again, reusability remains key to SpaceX’s ability to under-price its competition. The company previously stated that a Falcon 9 rocket can be reused 10 times. However, recent examples have shown that this number can be as high as 12 launches.
With each launch, SpaceX is able to recoup more of the cost that it incurred to develop and manufacture the rocket. In the past, the company stated that a Falcon 9 launch comes with a price tag of $62 million while only costing $28 million.
Another key aspect of SpaceX’s dominance is the in-house approach the firm took concerning the supply chain.
Much like Musk’s other company Tesla, SpaceX heavily relies on in-house manufacturing instead of procuring parts from different suppliers.
While the production of individual parts is outsourced, many of the rocket’s core parts, such as the engine, stages, and even software, are developed at its headquarters in Hawthorne.
“If a supplier is unable or unwilling to deliver the part, we can quickly make that internally“, said Musk about Tesla and SpaceX during the 2016 Code Conference.
Apart from saving money, SpaceX is also able to achieve greater quality as it can tailor each part to its own specific use case. Additionally, the lead times to get a piece deployed are substantially decreased.
The basis of SpaceX’s low-cost approach lies in first-principle thinking, which is defined as “a basic, foundational proposition or assumption that cannot be deduced from any other proposition or assumption.”
In the context of rocket manufacturing, this means boiling things down to the most fundamental truths like what component is really needed and how much should each of those realistically cost.
This method of thinking is best exemplified in Ashlee Vance’s book about Musk. Back in 2004, SpaceX engineer Steve Davis was tasked with sourcing an actuator for the Falcon 1 rocket.
After being quoted $120,000, Musk told him that “that part is no more complicated than a garage door opener. Your budget is $5,000. Go make it work.”
9 months later, Davis successfully built an actuator for $3,900, leading to a cost reduction of 96 percent.
Another core principle that Musk brought to the space industry is deeply rooted in the mantra of Silicon Valley, which is to move fast and iterate on obstacles faced.
Instead of hiring thousands of people to work on a rocket and waiting years to launch, SpaceX started with a few dozen engineers that derived learnings based on multiple iterations.
And since Musk started the company with his own money and did not have any bosses to report to (unlike NASA officials whose failures attract substantially more public scrutiny, at least back then), he could allow himself and his engineers to fail fast.
As SpaceX has grown in size and popularity, it has become subject to more attention, though. Consequently, keeping up a base level of public admiration is crucial in securing the necessary permits it needs for operating, which I’ll cover in the next chapter.
Regulatory Approval
Now, SpaceX’s technological prowess alone won’t be enough. After all, it can’t just launch rockets into space as it pleases.
Instead, the company often needs to go through a lengthy process to receive the permits it needs for launching a service or testing products.
For example, back in June 2022, the U.S. Department of Transportation’s Federal Aviation Administration (FAA) announced that SpaceX would need to adhere to 75 actions to launch the Starship rocket from its Boca Chica facility in Texas.
The approval ensures that SpaceX consistently monitors the impact that its rocket ship has on the surrounding environment.
However, regulations haven’t always stopped SpaceX and more specifically Musk to go ahead with launches.
“Whether it is launching satellites with unlicensed antennas, launching rockets without approval, building an unapproved launch tower, or re-opening a factory in violation of a shelter-in-place order, the conduct of SpaceX and other Musk-led companies makes their view plain: rules are for other people, and those who insist upon or even simply request compliance are deserving of derision and ad hominem attacks,” Amazon, which is working on a competing satellite constellation, wrote back in September 2021.
And while this certainly may be true, SpaceX largely remains compliant with local regulations to not attract any further scrutiny.
Gaining regulatory approval is particularly crucial when taking a look at the firm’s Starlink business. SpaceX plans to eventually deploy around 30,000 in LEO.
While Starlink currently takes the lead, it has competitors to deal with. Starlink competitors, which include OneWeb, Amazon’s Kuiper Systems, or Telesat, each plan to launch hundreds or even thousands of satellites of their own.
And although space is infinite, earth’s low orbit isn’t necessarily. According to reporting from Reuters, China alleged that one of Starlink’s satellites almost crashed into one of theirs.
Even NASA, the firm’s largest customer, issued a letter that stated its Starlink Gen2 satellites could endanger astronauts and even people on earth (as space debris would uncontrollably crash down on the planet).
And while there are potential solutions, such as the usage of lasers, that enable satellite-to-satellite communication, there are no guarantees that companies will be willing or able to offer to sign deals with their competition or foreign adversaries like the Chinese government.
Being first to market and deploying its fleet before further issues and conflicts arise is therefore of the essence.
One aspect that cannot be underestimated in this regard is the loyal following that Musk has amassed over the years.
With over 120 million followers on Twitter alone, he can certainly shift the debate and thus a potential decision in his favor.
Maximizing First-Mover Advantage
The last pillar of SpaceX’s business model strategy is to take advantage of the first-mover advantage the company has been able to create for itself.
Here’s roughly how SpaceX got there:
- 2001 – 2004: the founding of the company and hiring of industry veterans; all funded by Musk himself
- 2005 – 2008: awarded roughly $250 million by Commercial Orbital Transportation Services program (COTS) in 2006; proof of Falcon 9 concept capped off by first successful launch in 2008; awarded $1.6 billion by NASA in December 2008, which saved the company from bankruptcy
- 2009 – 2014: awarded multiple contracts by NASA and other agencies; development of Falcon 9 reusable rocket and Dragon capsule
- 2015 – 2018: first launch of reusable Falcon 9 rocket and subsequently becoming the world’s leading commercial launch provider; raising billions in venture funding while amassing a valuation of $30.5 billion
- 2019 – today: funneling commercial launch income, venture funding, grants, etc. into the launch of Starlink; transporting humans to the ISS; more launch dominance
As you can see from the very simple summary above, SpaceX not only utilizes an adaptive approach to the manufacturing of its rockets but also when it comes to its business strategy.
It used the proof of concept to attract NASA funding, which then eventually led to the development of its reusable rockets. Those reusable rockets are now highly profitable and enable the company to fund its Starlink broadband service.
And going forward, SpaceX’s strategy is to use the proceeds from Starlink and funnel them back into other moon-shot projects such as the Starship.
To understand just how dominant SpaceX has become, let’s take a look at some data points. For example, the last three NASA Launch Services II contracts have all seen SpaceX bidding against itself.
Today, the Falcon 9 and Heavy account for around 50 percent of all rocket launches across the globe. The situation has only been amplified by Russia’s invasion of Ukraine, which saw many companies prohibited from using Russia-made rockets like the Soyuz or Proton.
It has become so dominant that Starlink competitors such as OneWeb and Amazon’s Project Kuiper had to contract SpaceX to get their satellites into space.
And this is exactly where SpaceX’s current competitive advantage comes into play. By having others pay for its rocket launches, they essentially subsidize the formation of its Starlink constellation.
For example, companies can book so-called rideshare missions where their loads only represent a portion of the overall volume. The rest, as seen in the past, can then be filled up with Starlink satellites.
Additionally, SpaceX’s cost of launching loads into space is substantially lower than what it charges customers (remember $62 million vs. $28 million), so it can reach break-even much faster.
And since SpaceX has missions booked all the way through 2025, with more likely to come, there’s no end in sight when it comes to its sustained dominance.
As a result of that domination, SpaceX has been able to grow its valuation substantially and tap investors for additional cash. Back in February 2022, SpaceX even underwent a 10-for-1 stock split to make its shares more accessible to new backers.
SpaceX’s dominance has also enabled the firm to boost other divisions. In August 2021, SpaceX announced its first acquisition after purchasing satellite startup Swarm Technologies. Swarm develops micro-satellites that weigh around 400 grams apiece and are used to provide IoT connectivity.
By being put on SpaceX’s Falcon rockets, the startup (or now business unit) was able to greatly reduce its cost base and accelerate the deployment of its mini-satellites.
With that being said, let’s take a closer look at how SpaceX actually makes money.
How Does SpaceX Make Money?
SpaceX makes money from launching objects and people into space, offering broadband internet, providing research services, and by selling merchandise.
Let’s take a closer look at each of those in the section below.
Launch Services
The launch business of SpaceX, namely transporting items or people into space, represents its core revenue stream.
NASA likely remains the firm’s biggest contractor. In the fiscal year 2022 alone, the agency awarded SpaceX $2.04 billion.
In August, it received another $1.4 billion for five more NASA astronaut missions to the ISS (until 2030).
That same month it secured the NASA contract, SpaceX inked another one with the U.S. Space Force to deploy spy satellites.
U.S.-based government entities aren’t SpaceX’s only customers, though. In the past, the Falcon 9 and Heavy models have transported payloads on behalf of the Korean Army, Sirius XM, the German Intelligence Service, Türksat, the Italian Space Agency (ASI), Intelsat, and many more.
Apart from commercial payloads, SpaceX has also taken the first steps towards building a launch business aimed at space tourists.
In September 2021, SpaceX transported billionaire Jared Isaacman, alongside a group of three other people that won those seats via a lottery, into circular orbit of about 585 kilometers.
And Japanese billionaire fashion mogul Yusaku Maezawa, together with 10 more crew members who call themselves dearMoon, is set to board SpaceX’s Starship on its trip around the moon.
The key to making the launch business work is to minimize any types of failures. SpaceX, by transporting both items and people safely from and potentially back to earth, ensures that trust in its services remains high and thus is being booked.
Additionally, the more successful launches and landings it records, the greater SpaceX’s cost savings per manufactured rocket (since the cost of producing a new rocket amortizes with each successful launch).
For all intents and purposes, this is what SpaceX has done so far. The last time one of its rockets exploded mid-air was in 2015. And the last time the Falcon model failed to land back on a booster dates back all the way to February 2021.
Internet Services
The second major revenue stream, and likely its biggest in a few years, is the internet broadband service called Starlink.
Starlink enables people in remote areas to browse at speeds of up to 200 megabytes per second, which is substantially higher than any service that was previously offered.
Those services normally rely on single geostationary satellites that can be as far away as 35,000 kilometers.
Therefore, the communication between the user (or rather hardware) and satellite, commonly known as latency, is extremely high, making activities such as online gaming or video calls nearly impossible.
Starlink has turned that concept on its head by deploying thousands of satellites that roam the earth at around 550 kilometers distance. Eventually, Starlink aims to deploy roughly 30,000 satellites that constantly communicate with each other to ensure global coverage and quasi-zero downtime.
The way SpaceX monetizes Starlink is twofold. It charges a one-time hardware fee of $599 to send the kit and associated manuals (the user is the one who sets up his or her Starlink system).
Second, customers pay a recurring monthly fee of $110 to be able to access the service, which unlike many other internet offerings can be canceled at any time.
In recent times, SpaceX has extended the potential customer base that Starlink can tap into. It, for example, offers Starlink for RVs, which enables customers to access the internet while on the go. Starlink charges an additional $25 per month (for a total of $135) to access the mobile plan.
The third type of customer can largely be described as business-to-business. For example, Starlink has inked deals with Royal Caribbean to improve connectivity for guests and crew or Hawaiian Airlines to provide free in-flight Wi-Fi.
Starlink charges different fees depending on what business customer it works with. Starlink Maritime, as reported by TechCrunch, costs $10,000 for two terminals to be set up and another $5,000 per month.
However, this pales in comparison to what others would charge. TechCrunch pointed out that SpaceX itself was paying a whopping $165,000 per month for a third-party VSAT service.
The largest advantage of offering internet services to both consumers and businesses is the predictability of revenue. Right now, Starlink, on top of being cheaper, is substantially more performant than any other service out there.
But not everything has been positive, though. For once, scientists are concerned that the Starlink satellite constellation could affect the night sky and thus lead to so-called streaks on astronomical images.
There’s also the concern of potential crashes and resulting orbital debris, which may endanger astronauts on their missions.
And even back down on earth concerns remain. In November 2022, Starlink introduced restrictions that would result in slower speeds for customers who use one terabyte of data during peak hours (7 am – 11 pm).
Internet speed testing site Ookla had previously reported that the more people get on the service, the slower it appears to become, with median download speeds dropping anywhere between 5 percent to 54 percent.
The only solution to that problem will be the continuous deployment of new satellites, which SpaceX and Starlink are certainly equipped to achieve.
Research Services
I’ve already described at length how SpaceX has revolutionized a whole industry through its reusability and integrated supply chain approach.
This has been particularly evident when looking at NASA’s Artemis program, which aims to usher in a new era of space exploration by landing the first woman and person of color on the moon, among other initiatives.
The development of those rockets has consequently been outsourced to other companies such as SpaceX and Boeing.
Although Artemis was only announced in 2020, NASA has already been awarding contracts to both companies since 2014.
Boeing even received 60 percent more than SpaceX since NASA believed that the former would be able to finish production of its Starliner rocket much earlier.
Yet, as of today, it has been SpaceX vis-á-vis the Starship rocket, which has been advancing substantially faster in its development. While Starship is predicted to have its first manned mission in 2023, Starship hasn’t even taken off once.
As stated above, SpaceX has since overtaken Boeing as NASA’s second-biggest contractor. In 2022 alone, NASA awarded $2.04 billion to SpaceX while Boeing received $1.72 billion.
Now, some of that money can be attributed to SpaceX’s launch services like transporting NASA astronauts to the ISS via the Dragon capsule.
Nevertheless, a substantial percentage was committed to what I would largely describe as research services that SpaceX conducts on behalf of its clients.
And NASA isn’t the only agency that pays SpaceX to conduct research and development on its behalf. Back in March 2021, the Air Force Research Laboratory (AFRL) awarded SpaceX an $8.5 million contract to research various manufacturing techniques for heat shields.
Six months later, the U.S. Space Force handed out grants worth $87.5 million to a variety of companies, including not only SpaceX but also competitors like Blue Origin and Rocket Lab. SpaceX received $14.4 million for combustion stability analysis and to test its Raptor rocket engine.
As highlighted above, agencies like NASA are incentivized to work with SpaceX due to a variety of factors. Not only can they achieve substantial cost savings but also avoid working together with foreign adversaries like Russia’s RKK Energiya.
Merchandise
A small, yet likely not insignificant revenue of SpaceX is the merchandise that the company sells via its own website as well as through licensing deals.
Fans of the company can purchase various clothing items, including jackets, hoodies, t-shirts, long sleeves, and so forth.
Those clothing pieces are aimed at men, women, and children. Additionally, SpaceX also sells accessories such as journals, water bottles, posters, and more.
When looking at the pricing of those items, one can see just how popular the company must be. A SpaceX-branded journal, for instance, can be had for $30.
This is underpinned by its social following. On Instagram alone, over 16 million people follow SpaceX. And its illustrious CEO Musk brings another 120+ million dedicated Twitter followers to the table.
SpaceX, apart from selling merchandise via its own website, has also entered a licensing agreement with toy manufacturer Mattel.
Mattel inked a similar partnership with Tesla, another one of Musk’s companies, in the past. Under the agreement, SpaceX will receive a percentage of each toy that Mattel is able to sell.
What Is the Annual Revenue of SpaceX?
Unfortunately, since SpaceX remains in private ownership, there are now confirmed figures when it comes to revenue and potential profits (or likely losses).
Luckily, there are reports and data points that could provide some indication. Jefferies analyst Sheila Kahyaoglu estimated that SpaceX generated $2 billion in launch revenue during the fiscal year 2018.
That year, the firm recorded 21 successful commercial launches. The firm’s revenue likely decreased in 2019 given that it ‘only’ launched 11 rockets into space. However, this is ultimately dependent on how the contracts it signs are booked on its income statements and balance sheet.
SpaceX’s revenue has certainly increased in a substantial manner ever since. In 2022, for example, the firm successfully launched 24 external payloads into space.
On top of that, SpaceX also launched over 30 rockets transporting Starlink satellites. The broadband internet service, as I’ve mentioned above, now counts over 1 million subscribers.
At a minimum (i.e., only commercial users), this is equal to an annual revenue run rate of $1.32 billion (= 12 months x $110 per month x 1,00,0000 subscribers).
This figure disregards the $500 price tag on installations, the $25 per month that RV subscribers pay on top, and all the business customers that substantially pay more.
It, thus, wouldn’t be surprising if Starlink alone already operates close to a $1 billion annual run rate. Given that SpaceX has been able to more than quadrable its valuation from $30.5 billion in December 2018 to now $125 billion, it stands to reason that the firm’s revenue has accelerated in a similar fashion.
