Is Rocket Lab (RKLB) the Next SpaceX?

Source: cabotwealth

Earlier this week, SpaceX completed a private tender that saw the firm (and investors) acquire $1.25 billion in shares from insiders at a price of $185 per share.

This transaction values the company (which does not trade publicly) at $350 billion, making it, according to Bloomberg, the most valuable private start-up on the planet.

It also lowers the odds that the company will pursue an IPO in the near future (why spend an estimated $500 million buying shares back if you’re considering selling any to the public).

So, for investors looking to get into the commercial space race (which is having a big moment) SpaceX is effectively off the table.

Although it should be noted that Destiny Tech100 (DXYZ), which holds a number of privately traded shares, including SpaceX, can be traded by the public (and is up 70% in the last month alone).

There is, however, a publicly traded competitor to SpaceX, and it happens to be the second-biggest company when it comes to putting stuff in orbit: Rocket Lab (RKLB).

Last year, 87% of successful U.S. launches (96 of 110 in total) were performed by SpaceX.

Rocket Lab came in second, with eight launches on its Electron platform, a small-lift partially reusable launch vehicle.

But putting a satellite in orbit is essentially where the comparison ends.

In 2023, SpaceX lifted an aggregate payload of 1,200,000kg into orbit. Rocket Lab’s total was closer to 820kg, or less than 0.07%, and at a much higher price point.

Getting a satellite into orbit runs about $25,000/kg on Electron, whereas the Falcon 9 costs closer to $3,000 to $6,000/kg.

That figure does come with some caveats, however.

Most notably, there is no shortage of criticism directed towards SpaceX for allegedly intentionally undercutting smaller competitors in price, which some have called uncompetitive.

Also, there were 2,850 spacecraft deployed globally in 2023, with 2,222 deployed by U.S. companies.

SpaceX’s share of that total, or 1,986 spacecraft, was predominantly made up of Starlink satellites (over 99%) with other non-Starlink satellites being hoisted as part of their “Rideshare” program, which offers favorable pricing at the cost of SpaceX prioritizing its own launch windows and conditions.

The most significant part of the cost difference simply comes down to platform size.

For low-Earth orbit, the Electron platform has a maximum payload of 300kg compared to a maximum Falcon 9 payload of 22,800kg. Until they can scale up their payload, Rocket Lab cannot compete on per-kilogram cost and has to differentiate itself with delivery flexibility and accuracy.

You can see that in the following graphics from Rocket Lab’s latest investor presentation.

But there are two factors that are likely to tilt the odds more in Rocket Lab’s favor in the next year.

2 Gamechangers for Rocket Lab

The Neutron Medium-Lift Launch Vehicle

The first is the company’s much-anticipated Neutron medium-lift launch platform, which is expected to launch in 2025.

The first launch has been pushed back from 2024, but if the 2025 timeline holds, Neutron will have gone from announcement to launch even faster than SpaceX’s Falcon 9 did.

And it seems to be well on its way, having just fired its Archimedes engine for the first time earlier this year.

The Neutron platform would immediately make Rocket Lab competitive on cost with SpaceX.

With the test of Archimedes, Rocket Lab is prioritizing production and engine qualification, with the ultimate goal being Neutron’s inaugural launch in mid-2025.

And with a billion-dollar backlog (for Electron) and half as much in cash on hand, the company has the financial war chest to get there.

“Tailored Mission Assurance”

The second factor that stands to benefit Rocket Lab is the U.S. Space Force’s new emphasis on what they call “Tailored Mission Assurance.”

In a press release earlier this year, Frank Calvelli, Assistant Secretary of the Air Force for Space Acquisition and Integration, was quoted as saying, “Today marks the beginning of this innovative, dual-lane approach to launch service acquisition, whereby Lane 1 serves our commercial-like missions that can accept more risk and Lane 2 provides our traditional, full mission assurance for the most stressing heavy-lift launches of our most risk-averse missions.”

This segmented approach to risk is designed to allow new providers to onboard into lower-risk services and gain experience.

In the same release, Brig. Gen. Kristin Panzenhagen, program executive officer for Assured Access to Space, explained, “Our strategy accounted for this by allowing on-ramp opportunities every year, and we expect increasing competition and diversity as new providers and systems complete development.”

Put another way, multiple risk tiers serve as a proving ground, precisely the kind of step one would take to acknowledge the high risk of launches while fostering competition.

The added emphasis on provider diversity doesn’t guarantee that Rocket Lab will be able to break SpaceX’s stranglehold on space, but with 62% of all non-SpaceX launches so far in 2024 and the progress with Neutron, they’re well on their way to being a contender.

As for Rocket Lab stock, it’s up 61% in the last month and more than 340% so far this year. It’s highly speculative, but with SpaceX being private, it may be the best play on what appears to be a burgeoning commercial space race.