SpaceX Evolution (Chapter 3)
A serialized version of this book for SubStack
CHAPTER 3: PAYING FOR TOMORROW
At first glance, SpaceX appears to have limited financial resources, which mainly derive from launch services and some government funding to develop new space capabilities. However, they are currently in the process of liberating enormous revenues, at an extraordinary margin, through harnessing their significant cost advantages to build and launch spacecraft. For example, their Starlink constellation can deliver high speed internet to anyone anywhere on Earth, effectively creating a market of billions of people who are currently underserved or have no internet access. This promises to deliver up to a $trillion in revenue per annum, at software level margins (See Chapter 6: SpaceX Majority/Starlink).
SpaceX’s Gwynne Shotwell says the company plans to start polar launches of Starlink satellites this summer. Hopes to have full global connectivity after 28 launches [by end of 2021]; after that additional satellites will add capacity.1
In coming years many civil and defense agencies will become increasingly dependent on SpaceX for LEO satellite services,2 ballistic transport and crew launch capabilities. Overall SpaceX’s comparatively low cost and unique capabilities will allow these agencies much grander ambitions and to go much farther, no doubt generating enormous revenue for SpaceX.
Tesla too appears to make relatively little on their energy and automotive business but that ignores the commercial potential of software. Every vehicle they sell is a platform for software sales – all at software margins. Here’s some creative examples of how Tesla currently leverage their software expertise: -
1. Any excess energy generated at home from solar panels or kept in large storage systems can be sold back to the grid using their Autobidder software.
2. The Tesla app offers highly competitive insurance to existing car owners because Tesla records each customer’s driving history. In addition, should an accident occur, any damage can be rectified at cost at a Tesla service center, with an appointment booked through the Tesla app.
3. The Full Self Driving software produced by Tesla will be leased to car owners, allowing a continuous stream of revenue at little extra cost. This will broaden their access to a market of millions of customers, as the number of Tesla owners steadily grow.
4. In early 2021 Tesla made a substantial investment in Bitcoin ($1.5bn), which promises enormous return as it becomes more mainstream. They also trialed accepting cryptocurrency for sales, offering merchandise in exchange for Dogecoin, and allowing newly minted Bitcoin-millionaires to purchase vehicles direct, as an incentive to avoid capital gains tax. In addition any cryptocurrency transactions performed overseas should avoid the normal costs associated with currency exchange and exchange rate fluctuations. Intriguingly crypto is classed as an intangible asset for accountancy purposes, so any reduction in its value would be classed as a company expense, and any increase as an appreciating asset, which overall reduces Tesla’s tax burden, however it trades.
Cryptocurrency is also used by SpaceX, who accept Bitcoin as a legitimate means of payment. In addition Elon Musk has personally invested in Bitcoin, Ethereum and Dogecoin, and offers technical advice to Dogecoin developers.3 Given cryptocurrencies general use and personal interest by Elon, it would appear more than a hedge against negative interest rates (applied by some European banks), currency exchange rates or inflation. Interestingly Elon stated some form of electronic currency would be used by settlers on Mars, so this early foray into crypto could be viewed as an evaluation exercise, on their way to creating their own currency when needed (see Chapter 10: Mars Economy, Phase 2 Mars Community).
“I think Mars itself will need to have a different currency because you can’t synchronize due to the speed of light, or not easily… I don’t know if Mars will have a cryptocurrency as a thing but probably, seems likely – but it would probably be a localized kind of thing for Mars.”4 ~ Elon Musk
All told, there appears many avenues open for these innovative companies to thrive and generate significant income. While received wisdom suggests only nation states can afford to really push technology, in reality most of the money in circulation resides in private hands, i.e. deposits in private or semi-private banks. Hence it should be possible for companies to fund such large projects unilaterally, if they are able to tap into these private reserves at scale.
“I’ve thought about money for quite a while, obviously since the PayPal days… It’s best to think of money as an information system, primarily an information system for labor allocation and for practical purposes it exists in a series of heterogeneous databases. They’re like very different data bases in bank mainframes around the world.”5 ~ Elon Musk
Link to next installment: https://chrisprophet.substack.com/p/spacex-evolution-chapter-4
https://twitter.com/jeff_foust/status/1379448725282689027
2 https://www.spacex.com/starshield/
3 https://decrypt.co/70945/exclusive-dogecoin-developers-say-theyve-been-working-with-elon-musk-since-2019