Elon Musk Is Scared (Not About Tesla)

Written by Adam English
Posted December 9, 2021

While the rest of the U.S. was shrugging off their food comas from Thanksgiving, Elon Musk sent out an email last Friday to a select list of workers that all but promised dire consequences without rapid and dramatic changes.

It’s what I call a “come to Jesus” moment. Repent and reform, lest looming existential consequences manifest.

This may be blasphemous, but in context, nothing could be quite as descriptive.

Long story short, SpaceX is in deep trouble, and Elon Musk was smart enough not to mention what is really going on. He was wise to send that email.

Let’s unpack it and get to the root of the problem.

Here is what Elon Musk sent to a select team of SpaceX employees, with emphasis added:

Unfortunately, the Raptor production crisis is much worse than it had seemed a few weeks ago. As we have dug into the issues following the exiting of prior senior management, they have unfortunately turned out to be far more severe than was reported. There is no way to sugarcoat this.

I was going to take this weekend off, as my first weekend off in a long time, but instead, I will be on the Raptor line all night and through the weekend.

Unless you have critical family matters or cannot physically return to Hawthorne, we will need all hands on deck to recover from what is, quite frankly, a disaster.

The consequences for SpaceX if we cannot get enough reliable Raptors made is that we then can’t fly Starship, which means we then can’t fly Starlink Satellite V2 (Falcon has neither the volume nor the mass to orbit needed for satellite V2). Satellite V1, by itself, is financially weak, while V2 is strong.

In addition, we are spooling up terminal production to several million units per year, which will consume massive capital, assuming that satellite V2 will be on orbit to handle the bandwidth demand. These terminals will be useless otherwise.

What it comes down to, is that we face a genuine risk of bankruptcy if we can’t achieve a Starship flight rate of at least once every two weeks next year.

Thanks,

Elon

So we know there is a scaling and liquidity crunch that is imminent, or at least disturbingly likely, and that things need to change, and fast.

The question is, why? And the answer illustrates the pinch between two pressures — bottom up and top down — when it comes to keeping SpaceX afloat.

First up, and easily explained, is the marquee business and marketing that drives headlines, especially those that portray SpaceX at the vanguard of the new space race. The Moon and Mars and beyond.

The “Starship” and “Raptor” projects are hand-in-glove in this regard. These programs are both built for heavy lifting — more weight and thus more fuel to fight gravity over large distances.

What Musk is calling attention to — without explicitly stating it — is the giant capital cost that comes with these programs. Sure, it locked in a contract with NASA for $2.9 billion to get to the Moon by 2025, but that really doesn’t go too far to cover the capital costs involved.

The first real orbital launch is hopefully going to happen in several months. Perhaps January or February 2022. Don’t hold your breath.

What he also is not mentioning is the threat to SpaceX's less sexy programs. Namely, putting smaller satellites into Earth orbits.

The erosion to future revenue from competitors for smaller, commercial launches is what is driving more pressure for the large orbital launch programs to make up the difference.

This is all about its bread and butter, and there has never been a greater threat to its business, right as it is getting off the ground.

What Elon Musk doesn’t want to talk about is the threat to SpaceX’s revenue from lighter rockets and loads.

A massive expansion is underway right now. In 2011, 39 small satellites were put into orbit. In 2017, there were 338. By 2020, the number leaped to more than 1,200.

That’s just the start of it. More than 12,000 satellites could be in space by 2028 — up from about 3,000 today.

While SpaceX is fighting for good press coverage that pushes the boundaries of space programs to bolster investment and productivity, this small rocket and payload revenue source is rapidly being captured by other companies. 

What SpaceX thought it could count on, the kind of revenue that would fund massive money losers today like the “Starship” and “Raptor” programs, is being siphoned off by other companies that are keeping a lid on capital costs as they advance their tech and maintain launch schedules.

We’re seeing a paradigm shift where biggest is not best, and the markets, both for the companies' services and stocks, are wising up.

Musk is desperately trying to save one of his pet projects, but all signs point to it already being a lost cause. He's playing catch-up to startups that are about to eat his lunch, something he's ill-equipped to handle and has rarely had to handle before.

Take care,

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Adam English

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Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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