Tesla
has disrupted the auto industry, been valued north of $1 trillion, and made CEO Elon Musk the richest person on the planet. One of his other companies—SpaceX—just might be a better business.
On the surface, that feels like a stretch. Tesla is the world’s most valuable car company, has grown sales at roughly 45% a year for the past decade, and done it profitably, generating some $12 billion in free cash flow over that span. What’s more, it sold 1.8 million all-electric vehicles in 2023, about 20% of all the battery electric vehicles sold in major auto markets worldwide.
The space business looks niche compared with cars. Sales at SpaceX are estimated to be less than one tenth that of Tesla. As for their respective industries, total car sales from major auto makers top $2 trillion annually. Combined sales at
Boeing
and
Airbus
—the dominant global providers of commercial jets—are expected to be some $170 billion in 2024. The global space launch business will generate, perhaps, $20 billion in 2024 revenue.
Size isn’t everything when determining what’s a good business. Musk tweeted in November that SpaceX’s space-based Wi-Fi service called Starlink had become cash-flow “break even.” That is, frankly, amazing.
Tesla shipped its first vehicle built on a production line—the Model S—in 2012. It took seven years from that point for Tesla to produce positive free cash flow consistently. The first batch of Starlink satellites went up in 2019. It took roughly four years for Starlink to achieve a similar milestone.
There is something else that separates SpaceX from Tesla: Competition, or the lack of it. SpaceX is one of one. It “is not the only show in town, but they are the biggest, baddest and fastest,” says Andrew Chanin, found of ProcureAM, which runs the
Procure Space ETF
that trades under the symbol “UFO” and provides investors with companies building businesses in space.
Since the start of 2023, SpaceX has launched rockets into orbit more than 100 times. The rest of the world, combined, has launched about 125 times. Private companies, similar to SpaceX, struggled to reach double digits. Only governments can compare. China has launched some 68 times over the same span.
MBA students everywhere are familiar with Harvard professor Michael Porter’s five competitive forces. The forces can help businesses look for advantages and set strategies. They can also explain why some industries offer better returns than others. The forces in no particular order are: The threat of substitute products, threat of new industry entrants, bargaining power of suppliers, bargaining power of buyers, and existing competition.
In the case of Tesla, it isn’t easy to start a new car company—as the stock prices of many EV start-ups illustrate—but existing competition is fierce with dozens of auto makers vying for EV market share. What’s more, car buyers do have some power. Just look at EV price cutting over the past year.
SpaceX, essentially, has no competition in the Western world. If you want to reach space quickly and safely, you have to call SpaceX.
Amazon.com
is starting a rival Wi-Fi business to Starlink. They have called on SpaceX to launch satellites.
SpaceX is also the one offering substitute products and services. Residential Wi-Fi service is available for $90 a month after buying $500 in hardware. Some 2.2 million people have signed up, including 900,000 outside of the U.S.
Starlink is also the best example of ‘killer app’ in space. SpaceX essentially invented reusable rockets that could be sent into space, returned, and used again, dramatically lowering the cost of reaching orbit. Then, to generate enough demand to fill up its growing launch capacity, SpaceX created Starlink—an application that enhanced the value of its launch business.
It’s a little like what
Apple
did with the iPhone and App Store more than a decade ago. SpaceX started with Wi-Fi, and what other applications it will develop for space down the road is hard to say. Some Wall Street analysts have suggested hypersonic travel—that’s like getting from New York to L.A. in an hour.
Tesla is also trying to develop a ’killer app’ for cars—its autonomous driving software. If Tesla can crack the self-driving code then millions of drivers, and passengers, will pay Tesla regular fees to have vehicles drive them wherever they want to go.
It’s hard to say exactly, but a lot of Tesla’s $675 billion in stock market value is tied to self-driving technology. Roughly half of Morgan Stanley analyst Adam Jonas’ $380 price target is based on Tesla’s software businesses.
Similarly, a lot of SpaceX’s $175 billion private market valuation is tied, not to the rocket hardware, but to the potential of Starlink and whatever space-apps the company can dream up next.
Write to Al Root at [email protected]
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