Elon Musk talks about SpaceX plans

My question is, why would he even want to take it public? Of course he'll make a lot of money, but he'll also lose control of SpaceX and have to take the next step by starting another company.

Posted by Eponymous at 12/04/07 10:31:10

Re: Eponymous

For his grandiose plans of colonizing mars, elon needs all the money he can get and then some.

And just because he wants to go public does not mean that he won't keep a majority of the shares for himself.

Posted by anonymous at 12/04/07 10:42:57

"why would he even want to take it public?"

For the same reasons any company is taken public. The company raises a large amount of capital from the shares that are sold. (Unlike loans, this money doesn't have to be paid back or interest paid.) The company can then put that money into new facilities, manpower, etc. to grow and expand operations.

The shares held by the investors, such as Musk in this case, can also be more easily sold and they can get their money back with, they hope, a good return on it.

I would expect that Musk would keep a controlling share of the company, just like Michael Dell and Bill Gates kept control of their companies when they went public.

- Clark

Posted by TopSpacer at 12/04/07 12:20:38

Good to know. So he gets the money for the next step and keeps control, win/win. Very exciting.

Posted by Eponymous at 12/04/07 12:38:27

If SpaceX turns out to be as successful as Musk hopes, then more power to him and the employees (and investors) of SpaceX. If what he claims in terms of price points will be true, then we are headed towards exciting times in commercial spaceflight revolution.

Posted by Ecstatic at 12/04/07 13:05:53

"If what he claims in terms of price points will be true,..."

Let's do a little math. Elon says that he is growing to 500-600 employees, based in CA. A conservative loaded cost for those people is $200k per head per year. So his annual fixed cost, not counting infrastructure is going to be 600 x $200,000, or $120,000,000. Yes $120M. Now divide by flight rate. In order to get his costs down below his target of $35M (ignoring the cost of the launch vehicle) he will need a flight rate of at least 4 falcon 9's a year just to pay his people. Throw in the cost of the vehicle itself (around $25M in parts) and you need a flight per month just to cover costs. 12 flights per year is close to the total global medium lift market. Now add in the overhead of the new 11 acre (yes, 11 acre) Hawthorne facility, (anyone price California real estate lately?) and it just gets worse.

When Mr. Musk was at the Space Symposium in 2006, he was talking about the high cost of the EELV, and he said "I really don't know why it costs so much" Very telling, since he is repeating the very things that make it cost so much, namely a large staff with high fixed cost, huge facilities capable of handling a much higher assembly and launch rate than really required, and overly optimistic projections about market penetration.

Put these together and his ability to just cover costs looks doubtful. Perhaps an IPO is his only way to get out and save any of the fortune that he went into this with.

Posted by an intersted money guy at 12/04/07 19:27:05

Can you briefly explain where $200K per head comes from? How is it a conservative estimate?

Posted by ignorant but learning at 12/04/07 20:58:16

$200K is actually a low estimate for an aerospace person-year. Big aerospace is at least $250K/yr.

Posted by Answer man at 12/04/07 21:11:21

Ok. I'm not disputing the number (I don't know enough). But how is the$200K to $250K estimate calculated? Salary + costs that should be less and less per person the more people you employ, right?

Posted by still very ignorant at 12/04/07 21:24:52

Aerospace employment in SoCal ranges from $75k to $125k. Let's just take the mid-point, about $100k. If you don't believe that, check salary.com. I believe it because that is what I have to pay to get people, and I have lost prospects to SpaceX, so I know they are paying going rates. Now, tack on benefits (health, dental, life, workmans comp, employer FICA and 401. I run around 33% for fringe, which is pretty typical given the cost of insurance lately (and a generous 401). Then add the overhead and G&A. We run 31% on those, and are located in a VERY cheap location. I would put his closer to 50%, especially since he has several layers of management (check his web page). So 100 *1.33 * 1.5 = 200. Now I say this is conservative because once you get to 500 people overhead becomes very hard to control. Typical large aerospace firms run over 100%, DCMA (Defense Contracts Management Agency) is currently using a 112.5% target for contracts. And that is with a separate G&A line, so it is even worse. I have personally seen proposals with 250% rates that were approved. Stuff costs money.

As a data point, I recently was laying out a program with a large engine vendor, and made the comment that we could staff it at $150k/man-year, and they LAUGHED, and asked where they could get some of that labor. To be successful, SpaceX and anyone else that tries to enter this business is going to have to control headcount Ruthlessly.

Posted by an intersted money guy at 12/04/07 21:25:41

Wow. Thank you. I've been a one man company for so long that I had forgotten why! Beyond the $ per head estimate, the rest of your original analysis was very interesting too.

I'm sure SpaceX is carefully considering how many employees it needs and whether it can do business somewhere else, but as usual, the key issue is whether the flight rate can go up, way up.

Thanks again.

Posted by Ignorant, but slightly less so now. at 12/04/07 21:45:50

interested money guy,

while I do agree that headcount has to be controlled, I suspect that Musk, and many others, are looking at making up profit in with margins, as oppposed to price.

Posted by Ferris Valyn at 12/04/07 22:48:45

interested money guy,
I really don't have any special insight into SpaceX (other than interviewing there before I joined Dave and Pierce in starting up MSS), but a couple of thoughts crossed my mind that I think you may be overlooking:

1. Not all of those 500-600 employees that he will be bringing on will be working on Falcon 9. Also Falcon 9 isn't SpaceX's only revenue stream. They also have Falcon 1 and Dragon (though it flies on Falcon 9, you can bet he's going to charge extra for Dragon flights).

2. Not all of his employees are full-time employees, and not all of them are located in California. For instance, a decent chunk of his employees will be out at his test sites in Texas, and a large number of those will be technicians, not engineers.

3. At least from what I've heard (I had a good friend interview there a few months ago), the age/experience distribution for SpaceX is different than typical aerospace companies. They tend to hire a lot of younger, less-experienced engineers, and balance them out with a smaller core of "grey-beards". Coming from a company that probably has an even lower average age, there are both advantages and disadvantages to that approach. But I'd be really surprised if that $75k lower limit to salary really applied to recent college graduates. That's more like the salary I'd expect someone with a Masters or 5+ years of industry experience to pull down. I know that once you get more experience than that, that you really can pull down pretty good salaries in this industry, but I'd really be surprised if their average salary was anywhere closer to $100k/year.

Now, all that aside, I do agree with you that SpaceX going on a hiring spree like this is concerning to me as well. I think we'd all like to see them succeed, if for no other reason than that a rising tide lifts all boats. I just hope they don't grow themselves too fast.

~Jon

Posted by Jonathan Goff at 12/04/07 23:51:55

I think we forgot about the cost of toilets. Those are $19,000 each.

Posted by Just Kidding at 12/05/07 00:28:07

interested money guy,<BR>
Interesting estimates, but you have estimated his ceiling, rather than the average or even the floor. As somebody pointed out, Spacex is hiring a minimal number of greybeards, but a lot of young motivated engineers. That is how it use to be done in the tech world (now that accountants have gotten ahold of it, it is simply moving jobs to India or China). Texas will not have all that many. But disregard all that. The real question will be, how many of these ppl will be producing (as opposed to salesman, accountants, financial, and managers who are nothing but overhead). Based on Musk's past, he will cut the overhead to a true minimum. Finally, you state that the material for a falcon 9 is 25 million. Nope. Not even close. The whole rocket is designed to be re-usable. In fact, he had to lose some payload capacity to keep the re-usability. Without that, the numbers will not work. When he did the most recent launch, how many ppl were there? Less than 20. And the majority were monitoring and watching. The fact is, that they expect to have less than 50 ppl on the ground for a falcon9 heavy, whereas something like that for SS (and even an atlas/delta) would take multiple 100s of ppl.

Posted by g.r.r. at 12/05/07 03:53:50

I suspect that going public is going to allow them to generate the capitol required to build Falcon 9 Heavy.
before any of the other big Altspace companies like T-Space, Spacedev could get their foot in the door with that category of launch vehicle. It would also ramp up their profile in the general public. It's interesting that Elon points to the China and India as his biggest competitors, he must be referring to international customers, certainly not for any domestic product or service originating from within the United States.

Posted by Ed at 12/05/07 06:51:42

"you state that the material for a falcon 9 is 25 million. Nope. Not even close."

Unless he can make the resusability thing work in his favor, this IS very close. I build hardware, and $500/lb is a pretty conservative number for high grade manufactured parts. A lot of other people use $1000/lb for aerospace hardware estimates. Unless you have really high volume (hundreds to thousands of units) it is hard to get that cost much lower. Aircraft produced in the 10's/year range run $250-$400/lb. That is why I estimated his vehicle cost at $25M: $500/lb x 50,000 lb.

Now if he can reuse some of that hardware it will help, but remember it is NOT the "whole rocket" just the first stage, and Mr. Musk is now claiming that for at least the first few years he is not even going to try going for reuse. But for even that to work financially, the cost of recovery, rework, and requalification must be lower than the cost of production. This is where the shuttle ran into trouble; reuse is not a golden ticket to low cost, and can actually lead to higher costs in some cases, especially if you have to maintain your own navy and such. The only path to low cost is low headcount and low overhead.

g.r.r.:
"...whereas something like that for SS (and even an atlas/delta) would take multiple 100s of ppl..."
You are correct in that it is the people, but you grossly underestimate the size of the standing army supporting these programs. The shuttle employs a total labor force of over 40,000 people, with fixed assets in a dozen locations worldwide and in orbit. Do the same math there: 40,000 x $250,000/year / 5 flights/year = $1B/flight, which is just what the shuttle costs to fly. And hey, its reusable!

Posted by money guy at 12/05/07 08:09:35

money guy, $500/lb or even $1000/lb for machined parts is a pretty open statement and impossible to asses since we don't know what is being machined exactly and how much it is costing spacex. All we can go on are statements from spacex or Elon himself. I'd like to be able to reference these comments to check the sources but I'm sure he has said that the launch of the rocket would be about 50% of the cost of the sale to cover R&D overheads.

Looking at the article itself I don't get the impression that he is worried that he will not make money or that margins are tight so from there you can either refuse to believe his claims, which is not unreasonable since most new ventures cost more than expected or try to figure out how these things are being done more cheaply. He has also said in the past that the business model is NOT based on reusability and hasn't made any statements that directly contradict this.

Personally I think going public would be to raise the cash to build a Falcon 1/9 production line that would further reduce cost's and put the Ariane 5, Proton and Zenit rockets out of business , but at this stage I would say it's anyones guess what will be done with any money raised.

Posted by broyale at 12/05/07 09:18:16

Elon is just following the same path that Orbital Science pioneered. They went public just as the Pegasus, their basic money maker, went operational.

And its for the same reason, namely that space flight is not as cheap and easy as many alt.spacers believe it is. It takes money, lots and lots of money. Again, when it all shakes out I expect a 10-15% price advantage for the Falcon 9 over EELV, IF he keeps his flight rate up. And because he won't have the legacy costs the aerospace majors have.

WiseSpacer

Posted by WiseSpacer at 12/05/07 12:58:37

I'm wondering how competitive SpaceX's salary is, as opposed to the compensation package with "meaningful stock ownership", using Elon's own words. There was a quote about it in one of the old Paul Graham's essays (back when he wrote smart things), about the stock ownership:

"One place this happens is in startups. At our startup we had Robert Morris working as a system administrator. That's like having the Rolling Stones play at a bar mitzvah. You can't hire that kind of talent. But people will do any amount of drudgery for companies of which they're the founders."

He's quite right about that. Elon would be a fool not to use this to his advantage.

And yes, his hiring spree is worrisome.

Posted by Pete Zaitcev at 12/05/07 18:03:42

This is the beginning of the end for SpaceX as it's inevitable failures to drum up enough business will have investors raging early.

Posted by anon at 12/06/07 19:53:13

WiseSpacer: "Again, when it all shakes out I expect a 10-15% price advantage for the Falcon 9 over EELV, IF he keeps his flight rate up."

Elon expects a much higher price advantage than that before there's any flight rate at all and without reusability.

anon: "This is the beginning of the end for SpaceX as it's inevitable failures to drum up enough business will have investors raging early."

ROFLMAO!

Posted by Sphigmomanometer at 12/07/07 13:16:16

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