Elon Musk gets compared to Steve Jobs a lot these days. Maybe it’s the showmanship, or the iconic popularity of each company’s products, or maybe it’s just the need for popular culture to focus on one charismatic technology torchbearer above all else. Maybe there’s a logical progression in some people’s eyes from phones and tablets to cars and spaceships. But for all the similarities and dissimilarities between the two, there’s one that often gets ignored — their strategies for getting their stuff made.
Steve Jobs’ Apple was not the first to use extreme procurement strategies as part of product development, but it was the one to turn it into fine art. With a massive pile of cash and enormous purchasing power, Apple under Jobs (and under current Chief Executive Tim Cook, the real architect of the procurement strategy) could afford not only to have the pick of the very best and newest technology for its devices, but to take control of the manufacturing and supply large portions of critical components. Sometimes this meant the company could drive down component costs through capital investment volume production, and sometimes this meant it could have exclusive access to critical components. Sometimes Apple did both, often to the dismay of its competition.
Apple has done this repeatedly, through different products and different components. In 2005, it prepaid $1.25 billion to five suppliers to buy up flash memory used to store files in its highly popular iPod. In 2009, it prepurchased from LG Display a five years’ supply of capacitive touch screens — an equally critical component for Apple’s iPhone (and later iPad) products. In more recent years, it has upped the ante, committing billions and billions of dollars for exclusive access to components across its supply chain — from baseband radios and camera lenses to processors and memory chips — while fattening margins and staying one step or another ahead of the competition.
Whether by example or necessity, Musk has learned from this strategy. His Tesla vehicles are models of engineering but they rely heavily on the availability and cost of lithium-ion batteries to meet performance and price points. In 2014, Tesla was consuming more than 10 percent of the world’s supply of battery production on its way to more than 100 percent by 2020 — an untenable situation. So the solution was the “gigafactory” — a $5 billion facility in Nevada to double the world’s production of lithium-ion batteries while using high manufacturing volume and the latest technologies to squeeze costs and control supply.
Which brings us to Musk’s other big company, SpaceX, and its relentless pursuit of reinventing space development. The company’s work on reducing the cost of rocket launches is now well known, but on Jan. 16 Musk announced the opening of a SpaceX office in Redmond, Washington, outside of Seattle, and unveiled plans for a world-spanning telecom network comprising a mind-blowing 4,026 satellites. Not long thereafter, SpaceX announced that Google and Fidelity had invested $1 billion in SpaceX to, among other things “support continued innovation in … satellite manufacturing.” For the satellite world, this ought to have been received as nothing less than an earthquake.
While SpaceX’s announcement occurred almost concurrently with the unveiling of a competing system, OneWeb, backed by Virgin Group and Qualcomm, Musk wasted no time hinting at the differences between the two projects. While OneWeb has put out tenders for established satellite manufacturers to bid on, Musk was determined to “do for satellites what we’ve done for rockets.” He later added his opinion that while the space industry was good a developing components, it wasn’t as good at building them. A gigafactory for satellites?
At the moment, space components pretty much live in their own market universe and benefit little from the large production volumes typically enjoyed by consumer devices. If you need radiation-hardened microprocessors or memory chips, they’ll cost you at least two or three orders of magnitude more than their non-radiation-hardened brethren and come from no more than three or four main suppliers. Want high-efficiency space solar panels? Same costs, and coming from two major suppliers. Likewise if you want high-power microwave components, propulsion systems, antennas, batteries, thermal protection, even cabling and any other component you might want to build your craft. Each of these parts will come from one of two or three suppliers. No wonder the typical satellite costs in the tens or hundreds of millions of dollars.
The industry has stayed this way because volumes have remained relatively stable for decades. With little reason to make more than a few dozen or a few hundred units per year, the space hardware industry has been mostly stuck in a high-cost environment. The largest movement so far has been from small-satellite builders making innovative use of off-the-shelf consumer or industrial components to drive costs way down, techniques that SpaceX has used to great effect so far with its rockets and Dragon spacecraft. But for even medium-sized satellite builders, the industrial base has barely budged — until now. Four thousand satellites mean a lot of satellite pieces and need sources of supply. And with the initial money in place, the long-overdue shake-up of the space supply chain will begin.
Other than Musk’s comments about building Hall effect thrusters, an electric form of space propulsion, we don’t yet know what components SpaceX will outsource versus those for which it will go full gigafactory. It probably will be a mix of both. Some incumbents will adapt and win big new business while some will get replaced by new entrants and possibly by SpaceX itself.
But whether it’s to drive down the cost of electronics or solar panels or batteries or even space-qualified cables, the whole space industry will benefit. Once the lower cost of launch gets paired with the lower cost to build, a whole new universe of space missions and businesses becomes possible and within reach for so many more.
As Steve Jobs would say, that’s the way to “Think Different” about space.
Ian Fichtenbaum is a New York City-based finance professional and an adviser to satellite media venture Outernet and to the American Industrial Acquisition Corp.
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