Get ready for a price war in space.
Rocket Lab has revealed the launch cost for its much larger, crew-capable Neutron - and it undercuts Elon Musk’s SpaceX.
The Kiwi-American company has also revealed its launch-frequency plans for the rest of the year - and how New Zealand fits in - after successful back-to-back launches in the US and NZ this month, and how it successfully lobbied for a new US military procurement policy (more on which below).
Speaking at a Bank of America industrial securities conference in London, Rocket Lab CFO Adam Spice said the Kiwi-American company is on track for its first Neutron launch by the end of 2024.
“We are positioning the Neutron to compete directly against the Falcon 9,” Spice said, in a reference to the mainstay rocket in Elon Musk’s SpaceX lineup.
The Falcon 9 carries about 16 tonnes down range. Electron’s been designed to support 13 tonnes down range, the CFO said.
“If you look at the sticker price of a Falcon 9 launch, it’s about US$67 million ($105m). We’re pricing Neutron to a US$50-US$55m launch service cost.”
That price tag means Neutron will be cheaper overall, if on a par with Falcon 9 on a per-kilogram basis.
Spice implied Rocket Lab could make a lot of money from the low-cost lift-offs.
“We ultimately expect margins to be around 50 per cent range on a GAAP basis,” he said, based on costs of US$20 to US$25m per Neutron launch.
That line was an indirect response to a question on what it will cost if a Neutron rocket goes kaboom on the launchpad. The price of failure will be a lot higher than Rocket Lab’s Electron, which launches a third-of-tonne payload into low Earth orbit for around US$7.5m.
The CFO said he was confident of a Neutron launch by the end of 2024 because Rocket Lab is on track for a test firing of the new rocket’s Archimedes engine “by the end of this year”. The test firing will take place at NASA’s Stennis Space Centre in Mississippi, where Rocket Lab has taken a 10-year lease on a 1 million square foot area. Construction was also underway on the Neutron construction and launchpad complex in Virginia (with the help of US$45m in subsidies from the US state).
Spice said part of Rocket Lab’s approach to Neutron development was to work as closely as possible, and be as transparent as possible, with anchor customers.
“We’re working with very important customers to make sure we build a rocket to the specs that are going to be useful to the customer,” spice said.
“To that end, we’re working with a US government customer who gave us a US$24m joint development contract to make sure the upper stage would be compatible with their needs,” Spice said in a reference to a US$23.35 grant from the US Air Force’s new Space Force division for work on the Neutron’s upper stage.
More US military funding could be in the offing.
Earlier this month, Rocket Lab founder Peter Beck told Space News he was “very happy” with a pending change to the way Space Force buys launch service.
Rocket Lab was one of the parties that lobbied for a “dual-lane” approach to provide opportunities for emerging launch providers as Space Force weighs the criteria for contracts that will apply from 2025 to 2034 (for at least 30 lower-end missions) and 2025 to 2029 (for more demanding missions). A US Space Systems Command draft released on February 16 supports the dual-lane approach. Previously, there was a “single lane” approach.
“We were obviously lobbying for this change and we felt that this would be a good approach,” Beck said. “It’s always good to have your customer be part of the development program informing you of their needs.”
The Rocket Lab CEO said it will not only have to compete against new players like Relativity Space and the Jeff Bezos-backed Blue Origin for so-called “Lane 1″ lower-end missions, but also Musk’s SpaceX - which could also compete for Lane 1 contracts.
While Musk’s SpaceX - which has a private equity value of around US$137 billion (to Rocket Lab’s listed market cap of US$1.85b) - has the wherewithal to win any price war - Beck’s pitch is that big US government customers like NASA and the Department of Defense will prefer to back at least two horses in the race, for competition and redundancy.
“Price is important, but I think in the spirit of this whole concept of making sure there are more than just two providers, I think the government will probably look upon that as a strategic industrial base decision,” Beck said. “If you want to foster and grow a wider industrial base, you may need to make some decisions not based only on price.”
A key requirement for Lane 1 competitors under the new procurement rules is to have accomplished a successful mission to orbit, something that Rocket Lab also pushed for.
At the Bank of America conference, Spice underlined that while Rocket Lab had launched 34 rockets (which would become 35 three days later with a BlackSky launch from Mahia on March 24), rivals like Virgin Orbit - currently seeking funds to avoid bankruptcy - were still in the starting blocks.
Spice said Rocket Lab had picked up business from another startup, Astra, which has seen eight of its 10 launches end in failure, including its loss of two NASA weather satellites in June last year. (Rocket Lab has had three failures in 35 flights, or two if you discount its maiden test flight, which was destroyed on the order of a range safety officer based on a suspected telemetry problem. It later turned out the flight was on course.)
The CFO said while high-volume launch outfit Starlink was a “walled” garden (the satellite broadband firm is a fully-owned subsidiary of Musk’s SpaceX), its putative rival Kuiper was an example of a potential growth customer. (Kuiper, a division of Amazon, was formed in 2019 with the aim of putting a swarm of satellites into orbit for global internet. It has yet to get a satellite into orbit).
Although still some distance behind its pre-pandemic launch frequency targets - and SpaceX’s launch cadence - Rocket Lab is now picking up the pace with the addition of a second launchpad at Mahia and now Launch Complex 2 in Virginia, which saw its first launch on January 24.
“In terms of launch cadence for the rest of the year, we’re targeting up to 15 launches - six more than last year’s record of nine,” Rocket Lab communications director Morgan Bailey told the Herald earlier this week.
“The majority of those launches are expected to take place from New Zealand.”
Spice told the BoA conference that “while you can never say never”, at this point Neutron launches are scheduled to be US-only.
The CFO had a challenging moment with the Silicon Valley Bank before US regulators stepped in to guarantee all deposits, including those above the Federal insurance threshold. Rocket Lab had US$50m with the SVB, or 7.9 per cent of its total cash (most of which was raised via its Nasdaq listing).
Rocket Lab reported a net loss of US$135.9m for the year to December 31, 2022, versus its US$117.3m net loss in 2021.
Revenue was up 239 per cent over the Covid-stunted 2021 to US$211m.
The firm’s backlog of orders for launches and space systems has doubled from a year-ago US$241m to US$503m ($798m).
Rocket Lab shares were up 0.25 per cent to US$3.94 in late Nasdaq trading today, for a US$1.85b market cap as its stock continues to languish well below its August 2021 listing price of US$10.00.
Meanwhile, the post-election rally cooled in the United States.