Link to First Installment: https://chrisprophet.substack.com/p/spacex-evolution
Exponential Growth
Normally when any new commercial technology is created by a startup, they are quickly acquired by an incumbent company, who either incorporate this new technology into their products, or quietly shelve it in order to protect their existing product sales. However, most model Musk companies are private, with no public access to their shares, which makes them extremely difficult to acquire without the consent of the existing owners. Tesla is publicly traded but have a comparable value to the rest of the auto-industry combined, so even if their competitors banded together they would be next to impossible to buyout – assuming they managed to justify such a bold move to their more conservative shareholders.
History suggests when any new disruptive technology is introduced into the market, the legacy companies are usually unable to respond and eventually shrink to a shadow of their former self. A good example of this process would be Kodak after the introduction of electronic cameras or Vodaphone following the advent of smartphone technology. So if legacy companies can neither obstruct nor replicate the new technologies offered by X.com, the writing would appear on the wall for these old guard OEMs. This implies X.com will face less and less meaningful competition as the years progress, suggesting adoption of their technology will follow an S-curve, effectively exponential growth in the first decade or more, depending on overall expansion of the economy.
“This [Tesla Bot] will be quite profound because you say like what is the economy? At the foundation it is labor, so what happens when there is no shortage of labor… Then is there any actual limit to the economy? Maybe not.”1 ~ Elon Musk
This process is called ‘creative disruption’ and once initiated almost impossible to stop, due to market demand for these new, highly sophisticated and beneficial technologies. Beyond doubt all of these Musk companies are developing some pretty innovative technologies but that doesn’t necessarily mean they will disrupt existing industries if they remain fairly small scale i.e. niche manufacturers. However, Elon plans to change the world, even create new worlds like Mars, which will require vast scale of manufacturing. He suggests SpaceX will build thousands of Starships to colonize Mars and Tesla will produce tens of millions of electric vehicles each year to accelerate our transition to sustainable energy. More importantly, there’s early signs they are on course to achieve this magnitude of scale, through improving the rate of production at each facility and by building more and bigger plants.
“[Aim to increase Raptor engine production to] roughly 800 to 1000 per year. That’s about what’s needed over ten years to create the fleet to build a self-sustaining city on Mars. City itself probably takes roughly 20 years, so hopefully it is built by ~2050.”2 ~ Elon Musk
Tesla is a prime example of this ability to scale; they greatly improved their US manufacturing capacity in 2019, built one new plant in Shanghai China in 2020, then built two more plants in Austin Texas and Berlin Germany in 2021. This 0-1-2 is effectively an exponential growth in their manufacturing capability, which will likely continue for many years to come. They built less than 4 new plants in 2022 but some of the more advanced manufacturing techniques they are implementing, like giga-press (used to die cast the chassis of vehicles) or fully automated production of their 4680 super-batteries, will allow considerably higher production from their existing facilities. This rapid ramp in production capability has boosted their market valuation to unprecedented levels for a company their size, and provided all the capital needed to continue exponential expansion, with little chance of being derailed by financial headwinds. Overall this could be seen as a model for X.com’s future: ever increasing production drives increased share value, which attracts more capital to continue rapid expansion; creating a virtuous circle of growth.
The competition is coming
No doubt the first sign of failure is when a company believes they can’t be beat, because competition is always possible, either in the present or potentially in the future. Great example of this was the Ford Motor Company, who at one point achieved a position of market dominance, which verged on a monopoly.
In the early twentieth century, Henry Ford created the Model T, the first mass manufactured motor vehicle, designed to be broadly affordable by the general public. No-one could compete with the Model T price, due to the extremely vertically integrated approach to manufacturing perfected by Ford. This production process was so inclusive that reportedly railway carts filled with iron ore entered one end of the factory and finished Model T vehicles exited the other. However, once this process was perfected the Model T’s design was frozen, which left an opportunity for competing car companies to produce more luxurious models, with a slightly higher price, that allowed them to gain a significant share of the market.
At present the auto market is dominated by legacy manufacturers, who specialize in building internal combustion engines. From a technical perspective, internal combustion engines are effectively mechanical computers, that use camshafts, clutches and gearboxes to control the mechanical output. In recent years some electronics has been added but these mainly monitor rather than control the engine’s operation. Hence these legacy manufacturer’s core competency lies in mechanical computing, which is completely alien to the electronic computers used to control electric vehicles. Quite tellingly, most legacy companies prefer to contract out any software work they require, because it is so far from their core area of competency. However, Tesla was set up in Silicon Valley, the epicenter of the software world, and employ some of the best programmers in the world, like Andrej Karpathy (who transferred from OpenAI to become the Senior Director of Artificial Intelligence research at Tesla). This allowed them to dominate the growing electric vehicle market, and their highly agile approach means they are not stuck in the rut of only producing one vehicle. In fact Tesla are constantly reducing production cost and upgrading their range with new hardware components and over the air software updates.
SpaceX enjoys a similar situation, in fact their dominance of the commercial launch market verges on supremacy. Their legacy rivals use technology from the previous century, employing relatively unsophisticated computers and programming, sufficient only to control their vehicle’s ascent to orbit. This means other companies rely on hundreds of staff to manage a launch, while SpaceX require a mere handful of employees on-site, because launch operations are mainly handled autonomously by their state-of-the-art main frames and the launch vehicle itself. Similarly it takes magnitudes more complex software to land a rocket or dock a spacecraft with the ISS, something SpaceX performs with relative ease.
A good example of this different caliber in capabilities would be the performance of SpaceX and Boeing during the NASA funded Commercial Crew Program. In September 2014, both companies were awarded contracts to create the first commercial crew spacecraft, based on their own original designs, with some technical support from NASA. On March 2, 2019, SpaceX successfully launched their first Crew Dragon spacecraft to orbit on the Demo-1 mission, without crew onboard to prove the vehicle’s capabilities. The spacecraft performed nominally throughout the flight and managed to dock autonomously with the International Space Station, in what could best be described as a symphony of software rendition.
“Like Dragon there can be no failures ever, everything has got to be tested to six ways to Sunday. There has to be tons of margin. There can never be a failure ever for any reason whatsoever.”3 ~ Elon Musk
Following their lead, Boeing’s Starliner spacecraft performed its first test flight to orbit on December 20, 2019 – in what is now known as the infamous OFT-1 mission. Before Starliner reached orbit its mission clock was set 11 hours fast, 4 then communications dropped out leaving it largely out of control. Any hope of docking with the ISS had to be abandoned, after the vehicle expended most of its propellant unnecessarily, leaving insufficient reserve for safe maneuvering close to the manned station. After this series of ominous failures, Boeing decided to cut their losses and began preparations for Starliner to use its meager propellant to perform a deorbit burn and return to Earth. Shortly before the spacecraft was due to separate from its disposable service section, Boeing engineers realized a simple thruster labeling error in the software could cause the service section to ram the spacecraft, possibly resulting in loss of vehicle. After quickly rewriting the code they managed to deorbit and recover the spacecraft, completing this shameful episode – despite Boeing’s vainglorious protestation that the test was a success. Note this vehicle was designed to carry people, and as Elon suggests safety should have been paramount; the vehicle should have been tested thoroughly until the results were squeaky clean, before any flight demonstration was approved by Boeing management. Following this debacle, a NASA-Boeing review team made 61 recommendations to correct software related issues and 19 recommendations to rectify communication dropout, 5 all to be completed before the orbital test was repeated, at Boeing’s expense.
In 2020 SpaceX managed to complete Crew Dragon development to the fixed price originally agreed with NASA, even throwing in some system upgrades for free. Compare this to Boeing who leveraged their position to receive more money,6 ostensibly to accelerate Starliner development, yet still haven’t managed to deliver a functional spacecraft. Ironically Boeing’s development and operating costs for Starliner are roughly twice that of SpaceX’s Crew Dragon, assuming it ever enters service.
Of course, in the commercial sphere competition can come from new entrants as well as incumbent companies. Hence it might be helpful to compare SpaceX performance with competing startups, who also intend to improve civilian space access.
“Suborbital is a step in the direction of orbit (huh-huh)…but just to put things in perspective you need about a hundred times more energy to get to orbit, verses suborbit. And then to get back from orbit you need to burn off that energy so you need a heavy-duty heat shield because you’re coming in like a meteor. So orbit is roughly two orders of magnitudes more difficult than suborbit.”7 ~ Elon Musk/Code Conference
Interesting to note, at the inception of these three companies, founders Richard Branson and Jeff Bezos had far greater financial resources than Elon Musk, yet scrappy SpaceX have somehow managed to achieve far more to-date, with far less. In the future, SpaceX intend to use Starship to transport passengers between international destinations, at a comparable price to commercial airlines. This service would substantially undercut these suborbital rocket flights, which will probably become passé, like the barnstormers in the 1920s, following the introduction of commercial passenger flights to continental destinations.
Of course many new contenders have appeared over the last few years, supple startups who sought to emulate SpaceX’s success in the emerging launch industry. However, these new companies mostly subsist on public and private capital hence are extremely exposed to any loss in investor confidence. At present the markets are quite reminiscent of the situation before the Great Recession in 2008, with enormous sums flowing into all manner of investments, accompanied by huge amounts of debt… When another recession hits, financially sound companies like SpaceX and Tesla will endure, but most startups will likely evaporate as their funding abruptly dries up. Generally in tough times the fittest companies tend to become stronger, due to adoption of increased internal efficiencies, accompanied by targeted investment to prepare for the economic resurgence. So SpaceX will likely flourish during any recession, buoyed by their sound government contracts and revenue from Starlink, while their less well-founded competition will likely vanish.
Then of course there’s geopolitical events, such as the invasion of Ukraine, which has substantially changed the nature of the launch market. Many SpaceX competitors, such as ULA, Northrop Grumman and Arianespace, rely heavily on Russian engines (RD-180 and RD-181) or Russian launch vehicles (Soyuz-2) which are now unavailable to them.8 9 However, SpaceX are ideally placed to make up any shortfall in launch capability by their competitors, using their stable of reusable launch vehicles which can be flown at relatively short notice. Essentially SpaceX are positioned to become the launch company to the world and their antifragile approach means external events only make them stronger.
Succinctly: the competition aren’t coming, in reality they are going.
How X.com compete with no competition
Usually when a single area of commerce is dominated or even monopolized by a single company, this can lead to extraordinary inefficiencies and excessive cost to the customer. Hence if a megacorporation like X.com comes to excel in a broad range of engineering enterprises this might be seen as even more threatening. However, SpaceX and Tesla already experience surprisingly little competition from incumbents, mainly due to their speedy advances in technology. Any drift towards complacency and exploitation is countered by their culture of hard driving advancement and altruistic corporate goals.
“Let us secure the future, secure the future of consciousness such that the light of consciousness is not extinguished, and we should try to do that as quickly as possible.”10 ~ Elon Musk
SpaceX wants to save life on Earth from some future catastrophe by transplanting it to new worlds, while Tesla aims to transition our economy onto more sustainable energy sources, in order to slow climate change. The sheer technical challenge of achieving these soaring goals demands an exponential growth in technology, which means company personnel are effectively competing with themselves, to improve their work from the day before. In addition, some internal competition is also quite normal within these companies. For example, SpaceX chose to start Starship construction at two different sites: Boca Chica, Texas (near the Mexican border) and Cocoa, Florida (near Cape Canaveral), primarily to promote competition between their respective workforce's. Similarly construction at Tesla’s Austin plant competed with their Berlin plant in Germany, and car production at their Shanghai plant competes with Fremont. No doubt as these companies continue to grow and eventually coalesce into a megacorporation like X.com, the opportunities to compete should only multiply.
Big Picture
Elon suggests each company is comprised of many discrete teams, which function similar to startups. A good analogy might be these startups act like cells, which would make the company analogous to an organ that performs a discrete function, such as: space exploration, surface transport/energy production etc. Once all these organs are assembled in the correct order and brought to life…expect unparalleled evolution.
2 https://twitter.com/elonmusk/status/1413911893316603908
4 https://spacenews.com/starliner-investigation-finds-numerous-problems-in-boeing-software-development-process/
5 https://spacenews.com/nasa-safety-panel-raises-doubts-about-starliner-test-flight-schedule/
6 https://www.teslarati.com/nasa-snubbed-spacex-overpaid-boeing-astronaut-launches-audit/
8 https://www.reuters.com/world/russia-halts-deliveries-rocket-engines-us-2022-03-03/
9 https://arstechnica.com/science/2022/02/russia-pulls-out-of-european-spaceport-abandoning-a-planned-launch/
Great piece Chris. I have a new piece coming at Risk & Progress next week that encapsulates Musk view of what a corporation/company is.
I describe it this way: “One does not purchase a car in order to buy more gas, one buys a car to go somewhere, gas is required to get there. A business is the same, it hopes to help its customers do something, making money helps it get there. When a company makes money, it can hire better talent, invest more in R&D, and (hopefully) do more for its customers.”
Money is a means to an end, not the end in itself. The corporation is the vehicle to that end.