Elon Musk’s Conundrum: When, And If, To Take SpaceX Public?
Space Exploration Technologies Corp. (SpaceX) chief Mr. Elon Musk cautioned employees about the vast fluctuations of the stock market in an email dated from 2013. The email addressed employee concerns about missing out on share price growth due to the company being kept private, and in it, the executive covered several topics, which included fears about the company being targeted by short-sellers and operating costs. At the time, SpaceX had freshly launched the Falcon 9, and the company's partnership with the National Aeronautics and Space Administration (NASA) was in its early stages.
The letter reveals Musk's thoughts about conducting a public offering of SpaceX's shares, and when combined with the company's current projects, shows how he might not have the complete luxury of choice in the matter.
SpaceX Was Burning Close To $900 Million In Costs In 2013 As It Got Falcon 9 Off The Ground
The eight-year-old email provides insights into SpaceX's operating costs at the time and Musk's rationale for not listing the company's shares on the public market. Rumors and speculation for a SpaceX initial public offering (IPO) are uncommon these days, but they are not absent either. These days they focus on the company's Starlink satellite constellation, operated by a SpaceX subsidiary, and the rumors often speculate about the company selling the shares for its internet subsidiary to the general public.
In his email, Musk explained to SpaceX's employees the volatility present in the stock market and how it would compound with the risky nature of SpaceX's business. In 2013, the company was developing the second generation of its Falcon 9 launch vehicle. This vehicle, dubbed as the Falcon 9 v1.1, took to the skies in September 2013, and it featured several upgrades such as new engines and more propellants.
When the email was sent, SpaceX was also recovering from a scare involving its Dragon spacecraft. The company's second Dragon spacecraft, which docked with the International Space Station (ISS) in early March of 2013, developed problems that initially appeared to be serious enough to jeopardize the mission but successfully became the first commercial vehicle to deliver unpressurized cargo to the space station.
Crucially, Musk also highlights that it would be unfeasible to take SpaceX public before it has developed a transport system capable of Martian missions. He ties this decision with the riskiness of the company's product development, explaining that any "anomaly on the rocket or spacecraft" would "result in severe punishment" on the stock market.
As he stated:
It is also not correct to think that because Tesla and SolarCity prices are on the lofty side right now, that SpaceX would be too. Public companies are judged on quarterly performance. Just because some companies are doing well, doesn't mean that all would. Both of those companies (Tesla in particular) had great first quarter results. SpaceX did not. In fact, financially speaking, we had an awful first quarter. If we were public, the short sellers would be hitting us over the head with a large stick.
We would also get beaten up every time there was an anomaly on the rocket or spacecraft, as occurred on flight 4 with the engine failure and flight 5 with the Dragon prevalves. Delaying launch of V1.1, which is now over a year behind schedule, would result in particularly severe punishment, as that is our primary revenue driver. Even something as minor as pushing a launch back a few weeks from one quarter to the next gets you a spanking. Tesla vehicle production in Q4 last year was literally only three weeks behind and yet the market response was brutal
SpaceX's Starship And Starlink Projects Will Require Billions Of Dollars In Investment
He also outlined that SpaceX's expenses during the year would range between $800 million to $900 million and that the company would have to launch at least one-third of its missions for NASA or with the Falcon Heavy to be even slightly profitable.
However, his comments at the start are perhaps the most important as they indicate that the executive might be willing to take SpaceX public once it has developed its rockets capable of conducting missions to Mars.
Musk starts the letter by stating:
Per my recent comments, I am increasingly concerned about SpaceX going public before the Mars transport system is in place. Creating the technology needed to establish life on Mars is and always has been the fundamental goal of SpaceX. If being a public company diminishes that likelihood, then we should not do so until Mars is secure. This is something that I am open to reconsidering, but, given my experiences with Tesla and SolarCity, I am hesitant to foist being public on SpaceX, especially given the long term nature of our mission.
This "transport system" is the SpaceX Starship launch vehicle system, currently under development in Boca Chica, Texas. The company has conducted several Starship test flights with the vehicle's upper stage, and it is preparing the entire rocket, with both the lower and upper stage, for an orbital test flight as it awaits the Federal Aviation Agency's (FAA) environmental audit of its launch facilities.
According to comments made in December last year, Musk hopes to send an uncrewed Starship mission to Mars next year. Back then, the executive brought forward his uncrewed mission timeline by two years after he stated in October that his company hoped to send a mission to the red planet in 2024.
The executive's December statements were as follows:
I think...I feel fairly confident about six years from now. So every...the Mars...Earth-Mars synchronization occurs roughly every 26 months. So we had one this year, this summer and that means in roughly like about two years will be another one, and then two years after that. So I think, I'd say if you say six years from now I'd think highly confident, if we get lucky maybe four years. And then we want to try to send an uncrewed vehicle there in two years.
Judging by the email and his latest comments, it appears as if a cautious Musk would like to wait until his company can conduct successful Mars missions before risking the stock market's volatility.
However, when we look at another portion of his email which highlights Tesla and SolarCity's "unwieldy" private capital structure and their need "to raise a lot of equity capital," it appears as if Musk might see his hand forced.
While in 2013, SpaceX had to contend with 'only' developing a medium-lift rocket and a spacecraft, with NASA's help, right now it has to develop the world's largest rocket and a satellite constellation with 42,000 satellites. Both of these are not ready for full-scale revenue generation and will not be ready for years to come.
In its latest funding round, the company raised $1.2 billion and a contract with NASA provides the company with $2.9 billion to develop a Starship lunar variant. However, the NASA contract is contingent on SpaceX meeting development milestones, with the payments currently paused due to litigation.
Musk estimates that it will take SpaceX $5 billion to develop Starship, and if he does decide to take his company public, then, based on his statements, it will be either when SpaceX requires substantially more capital than it can raise or when he is certain that Starship is operationally ready for Mars. Looking at the costs of developing both Starlink and Starship, especially with their fates linked with each other, it might be the case that the former might be true earlier than the latter.
In any case, SpaceX's fate is (perhaps aptly) tied to planetary orbits, with the next Mars launch opportunity approaching in September 2022.