Tesla has revolutionized the auto industry, making it worth more than $1 trillion and making CEO Elon Musk the richest person on the planet. One of his other companies, his SpaceX, could be a better business.
On the surface, that feels like a stretch. Tesla is the world's most valuable car company, with sales and profits growing at about 45% per year over the past decade and generating about $12 billion in free cash flow over that period. Additionally, in 2023, it sold 1.8 million fully electric vehicles, representing approximately 20% of all battery electric vehicles sold in major automotive markets around the world.
The space business seems niche compared to automobiles. SpaceX's sales are estimated to be less than one-tenth of Tesla's. In terms of their respective industries, major automakers' total vehicle sales exceed $2 trillion annually. The combined revenue of Boeing and Airbus, the world's leading providers of commercial jet aircraft, is expected to be approximately $170 billion in 2024. The global space launch business will likely generate $20 billion in revenue in 2024.
Size isn't everything when determining what makes a good business. In November, Musk tweeted that SpaceX's space-based Wi-Fi service Starlink had “breakeven” in terms of cash flow. That's frankly great.
Tesla shipped its first vehicle off the production line, the Model S, in 2012. From that point on, it took him seven years for Tesla to generate consistently positive free cash flow. The first batch of Starlink satellites was launched in his 2019 year. It took Starlink about four years to reach a similar milestone.
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There's more that separates SpaceX and Tesla. It's competition, or lack thereof. SpaceX is one of them. “This isn't the only show in town, but they're the biggest, baddest, and fastest.”
Space ETF procurement
It trades under the symbol 'UFO' and provides investors with companies building businesses in space.
Since the beginning of 2023, SpaceX has launched rockets into orbit more than 100 times. The rest of the world has been launched about 125 times. Private companies, like SpaceX, struggled to reach double digits. Only governments can be compared. China launched about 68 times during the same period.
MBA students around the world are familiar with Harvard professor Michael Porter's five competitive advantages. This power helps companies find advantages and develop strategies. It can also explain why some industries offer better returns than others. The forces are, in no particular order, the threat of substitute products, the threat of new industry entrants, the bargaining power of suppliers, the bargaining power of buyers, and existing competition.
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In Tesla's case, starting a new car company is not easy, as the stock price of many EV startups shows, but existing competition is fierce, with dozens of automakers vying for EV market share. Additionally, car buyers have a certain amount of power. Let's take a look at EV price drops over the past year.
SpaceX basically has no competition in the Western world. If you want to reach space quickly and safely, you need to call SpaceX. Amazon.com is launching a Wi-Fi business to compete with Starlink. They asked SpaceX to launch a satellite.
SpaceX is also a company that offers alternative products and services. Residential Wi-Fi service is available for $90 per month after purchasing $500 of hardware.Approximately 2.2 million people have registered, including 900,000 outside the United States.
Starlink is also the best example of a “killer app” in space. SpaceX essentially invented a reusable rocket that can be sent into space, returned, and used again, dramatically reducing the cost of reaching orbit. Then, to generate enough demand to fill its growing launch capacity, SpaceX created an application called Starlink to increase the value of its launch business.
what is it similar to
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Apple created the iPhone and the App Store over a decade ago. SpaceX started with Wi-Fi, but there's no telling what other applications they'll develop for space in the future. Some Wall Street analysts have suggested hypersonic travel. This is like getting him from New York to Los Angeles in an hour.
Tesla is also working on a “killer app” for its cars, or self-driving software. If Tesla can crack the code for self-driving, millions of drivers and passengers will pay a recurring fee to Tesla to take them wherever they want to go.
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It's hard to say exactly, but much of Tesla's $675 billion stock market value is tied to its self-driving technology. About half of Morgan Stanley analyst Adam Jonas' $380 price target is based on Tesla's software business.
Similarly, much of SpaceX's $175 billion private market valuation is tied not to its rocket hardware, but to the potential of Starlink and whatever space apps the company can envision next.
Email Al Root at allen.root@dowjones.com.
