SpaceX is going public this year

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even though Elon doesn't want to…

SpaceX began as a publicity stunt, the goal was to increase space enthusiasm. Elon Musk, the founder and CEO, wanted to purchase two ICBMs(Intercontinental Ballistic Missile) and launch them into space. For this, he met with multiple government agencies. Eventually flying to Russia to purchase these ICBMs. The agreed upon purchase price was $21 million. Upon arrival, the Russians told Musk the price was $21 million for each missile. They even began taunting him, saying “Oh, little boy, you don’t have the money?”.

On the flight home Elon said “… we can build them ourselves” and SpaceX was born.

Elon began visiting multiple aerospace companies in an attempt to purchase the necessary components. This proved futile, the prices were just too high. After some research, he found that the raw materials were cheap. It was the design and engineering that was expensive. Elon decided they would produce everything in-house.

Fast forward to today.

SpaceX is worth over $100 billion dollars. They’ve built the first reusable rocket, sent the first civilian crew to space, and docked multiple times with the International Space Station. But these accomplishments have not come without challenges.

In January 2019, SpaceX cut 10% of its workforce. The catalyst for this company wide purge was the decision to pursue two multi-billion dollar projects. These projects were StarShip and StarLink. The reduction in head count, freed enough capital to begin. Each of these projects, have seperately bankrupted other companies.

StarShip

StarShip, will be the largest rocket in history. It stands at over 36 stories tall. Not only is it the largest, it will also be the most powerful. StarShip was designed with the intention of making life multi-planetary. This is SpaceX’s mission statement: “The Company was founded in 2002 to revolutionize space technology, with the ultimate goal of enabling people to live on other planets”

Source: BBC

StarShip’s development has been anything but easy. For this undertaking SpaceX needed to build its own launch facility, StarBase. StarBase is located in Boca Chica, Texas. SpaceX has been attempting to buy the entire city. Since 2019 they have been offering residents three times fair market value for their homes. Not only have residents posed an issue, the government is now delaying progress.

StarBase is currently under review by the Environment Protection Agency(EPA). The EPA is reviewing the environmental impacts of launching such large rockets regularly from this site. If the EPA denies their request, development of StarShip would be forced to move to Florida. This would delay production at least 8 months.Not only is the EPA a problem, engine issues recently caused a bankruptcy scare.

November 2021, prior to Thanksgiving Elon sent a company wide email. This email outlined that SpaceX faced near term bankruptcy if they were unable to fix their Raptor Engines. Each StarShip needs 39 of these Raptor Engines.

Here is the email.

Source: The Verge

SpaceX is under a ton of pressure to execute. They need StarShip to run flawlessly in 2022. StarLink a project running simultaneously is compounding this pressure.

StarLink

Starlink is a global satellite internet project. The goal is to offer internet services to anyone, anywhere in the world. This will be provided by constellations of low orbit satellites. Currently SpaceX offers a Beta program with its Satellite V1. Here is the current pricing for this program.

Source: www.starlink.com

For me to join the StarLink Beta for a year it would cost $1,788. Comparatively, I pay $940 a year for fiber internet. StarLink currently provides a less competitive offer than my current Internet Service Provider(ISP). For StarLink to become competitive, they will need to be competitive with current internet providers. This landscape is become even more competitive with Google just joining.

Google Fiber vs StarLink

Elon has previously stated that StarLink is going after, “the 3% of Americans that are the most difficult to reach”. This strategy makes sense with their technology offering, but doesn’t follow his previous business strategies. Elons’ a product man, he builds products that sell themselves. This 3% of people are not his base. These are people as far away from tech as possible, both figuratively and literally. Over the long term it remains to be seen if satellite internet will replace cable. The Satellite V2 will be a more competitive offering, but that too has a number of challenges.

Satellites have issues current providers don’t . Weather being the main cause: snow, rain, and animals all provide challenges. Dish network, the largest consumer satellite provider, claims to be 99% reliable. Thats still 15minutes of downtime every day.

Conclusion

I believe SpaceX’s current project stack has left them highly susceptible to liquidity issues. Having two concurrent multi-billion dollar projects, that are interdependent on one another was a calculated risk. I think Elon saw StarLink as a way to expedite the StarShip project. StarLink gave SpaceX the means to push large amounts of resources toward StarShip. He did this because SpaceXs goal is making life multi-planetary faster. This has put the company in a position to execute or die.

I would never bet against Elon, but I think that StarShip launches will be delayed and force a needed capital infusion.

SpaceX on February 19, 2022 proposed a 10 to 1 stock split. The stock would go from $560 to $56, this is rather unusual for a private company. This could be nothing more than useful for talent acquisition, accounting purposes, or more internal volume. I have a hard time believing that. Tesla stock at IPO was $17 a share, I could see SpaceX lowering its price for retail investors. This is not unprecedented, Airbnb did a 2 to 1 private stock split 2.5 months prior to its IPO. The company went from $68 to $146 on the first day of trading.

Prediction: SpaceX will IPO in the next year if the market doesn’t tank.