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  • Imagine a $2,000 caror a $100 laptopor a $70 iPhoneor imagine any product

  • ten times cheaper than it was.

  • Imagine the fundamental market change that would bring.

  • Imagine the amount of demand there would be for that $2,000 car or $100 laptop or $70

  • iPhone.

  • That's what Elon Musk imagined 15 years ago when he sat on a pile of $165 million

  • dollars.

  • Elon Musk's businesses are all centered around some the most basic principles of economics

  • out there.

  • When he starts a business, he's not necessarily trying to do something new, he's trying

  • to do something right.

  • Musk made most of his early fortune through his involvement with PayPal.

  • In 1999 he founded a company called X.com which was quickly bought by Confinitythe

  • creators of PayPalso when PayPal was bought by eBay in 2002, Musk's 11.7% ownership

  • of the company translated to $165 million dollars.

  • Elon Musk has always been deeply passionate about space exploration and, as anyone knows,

  • public interest in space has been falling since the Apollo era.

  • Therefore, Musk's plan with his newfound fortune was to launch a rocket to mars carrying

  • a small greenhouse that would grow plants on the surface of the red planet.

  • Basically, he wanted to take all his money and put it into a big publicity stunt for

  • space exploration.

  • But he had a problemit was too expensive.

  • The cost of launches was absolutely immense and, even when Musk tried to buy decommissioned

  • Russian ICBM's, he couldn't find a way to pull off the project, but he had discovered

  • something.

  • The space launch industry was ripe for disruption.

  • Here's Joseph, the economics expert from Real Life Lore to explain why.

  • The rocket development and space-launch companies before Space X were essentially

  • aggregators.

  • They bought engines and guidance systems and all the other various components from other

  • companies to cobble together one completed rocket.

  • But all the different component suppliers also had their own component suppliers to

  • make their product.

  • The suppliers of the suppliers not only had to cover their development and manufacturing

  • costs, they had to sell their components at a markup in order to make a profit, and then

  • the next component manufacturer had to do the same which means that by the time the

  • component gets to the company assembling the rocket, it's expensive.

  • Not only that, but the assembly company also has to pay for employees that work to actually

  • figure out how to make all of the different pieces work together.

  • SpaceX however, works differently.

  • It makes 85% of the components it uses itself, which allows it to make cheaper parts.

  • For example, if SpaceX had bought their radios externally they would be paying $50,000-100,000

  • dollars each, but since they develop them internally they only cost $5,000 each to build,

  • a dramatic improvement in reducing cost.”

  • Joseph from Real Life Lore has a brand new book which includes two fantastic chapters

  • explaining simple economic concepts like this that I'll link in the description, but let's

  • talk Tesla.

  • Tesla's economic strategy is fairly similar to SpaceX's.

  • Tesla themselves makes about 80% of the 5,300 parts in a Tesla car, but for the most part

  • they don't make these, the batteries, at least yet.

  • Batteries are very difficult to make at a competitive price so very few companies do.

  • The largest three manufacturersPanasonic, BYD, and LG Chemmake a combined 63% of

  • the world's batteries.

  • Tesla, therefore, has historically just bought batteries from Panasonic at a cost of about

  • $200 per kWh.

  • But that means that Tesla's smallest battery pack, the 50 kWh version, costs $10,000 dollars

  • just in components.

  • When you're trying to sell a $35,000 dollar car and make a profit, that's a significant

  • cost that can be reduced.

  • Therefore, Tesla is attempting to reduce the cost of their batteries by 30% by building

  • their own factory in a joint-venture with Panasonic.

  • Their long-term goal, however, is to drop the battery price below $100 dollars per kWh

  • which would either double the range or halve the price of that 50 kWh battery pack.

  • But the vertical integration of Tesla and SpaceX isn't all useful.

  • The companies basically have to learn and perfect each step in the manufacturing process

  • and, if one step isn't working, no cars get made.

  • For example, the Tesla Model 3, the low-cost Tesla, is built using steel instead of aluminum

  • like the Model S and X.

  • With this change, the manufacturer is having troubles properly welding the vehicle bodies

  • together and so the entire production line is slowed down massively.

  • But there's something else unique about SpaceX and Tesla's production linesthey're

  • in the US.

  • Now this probably seems counterintuitivewhy would you put the production lines of two

  • companies working to make the least expensive products on the market in one of the most

  • expensive labor markets in the world?

  • Almost every US company has relocated their production lines to cheaper labor markets

  • in Asia and Africa but Musk has always had his in the US.

  • Believe it or not, this isn't a PR move.

  • It actually makes sense for the two companies.

  • Tesla and SpaceX's production processes are constantly being tweaked and optimized

  • as the companies learn to make their products.

  • While China might be able to build Tesla cars at the same price by using cheaper human labor,

  • Tesla's US factory is just miles away from its headquarters in Palo Alto meaning that

  • the executive, development, and production staff are all heavily integrated and can make

  • changes fast.

  • SpaceX even takes this a step further.

  • It's offices and manufacturing lines are all under one roof.

  • The Tesla factory in particular is also heavily automatized and the US excels in production

  • line automation with its abundance of highly skilled workers, but just how much is Musk

  • dropping the price on his products?

  • The United Launch Alliance, which historically has won most of the highly lucrative US government

  • launch contracts, is believed to charge more than $400 million dollars all-in for a military

  • satellite launch while SpaceX charges about $80 million dollars.

  • So, SpaceX is already at a fifth of the price, but as mentioned, Elon Musk wants that to

  • fall to a tenth.

  • Here's the key for thatthe fuel used in the Falcon 9 rocket only costs about $200,000

  • dollars per launchit's practically a non-factor in the launch price.

  • The real cost is of the rockets themselves, so that's why SpaceX is making them reusable.

  • The first stage of the rocket is now being designed to land back on earth and be put

  • back into service with dozens more launches.

  • Once this system becomes reliable, it's believed that the cost savings will drop the

  • launch price to $40 million dollars—a full 10 times cheaper than United Launch Alliance's

  • military launch price.

  • SpaceX's long-term goal is to get the launch price down to about $10 million dollars per

  • launch.

  • While the company has already made a significant impact on the space industry, a launch price

  • as low as this would fundamentally change what's possible in space.

  • Real space tourism would become feasible, commercial satellites would become downright

  • commonplace, and Space would become closer than it's ever been.

  • But SpaceX does have a bit of a problempeople aren't really buying more rocket launches

  • even though prices are down.

  • It's what's known as a price inelastic market.

  • That's the opposite of Tesla and the electric vehicle market where lower prices lead to

  • huge increases in sales.

  • The problem with the space launch market is that it is not a consumer marketnormal

  • people don't buy rocket launches.

  • Governments buy rocket launches and they don't care about price nearly as much as people

  • since it's not the decision makers' money.

  • The US Air Force, for example, decides they need to launch a certain number of satellites

  • each year for the national security reasons and they'll pay whatever it takes.

  • But Elon Musk's life goal is to get humanity to Marsthat's why SpaceX existsand

  • he needs money to do it.

  • Lots of money.

  • So, SpaceX is getting into the internet business.

  • The company is actively developing a satellite constellation that would provide high-speed

  • internet to anywhere on earth.

  • Thousands of small satellites would be put into low earth orbit and then anyone worldwide

  • could hook into the network using an inexpensive ground receiver.

  • If SpaceX got just 50 million users out of the 7 billion in its proposed service area,

  • this business could bring in $30 billion dollars a year.

  • Since SpaceX would be building and launching the satellites themselves, costs would be

  • dramatically lower than the competition's.

  • The whole commercial aspect of SpaceX essentially exists to fund Musk's future space exploration

  • projects.

  • For that reason, SpaceX is not a public company like Tesla.

  • Elon Musk does not want to make money with SpaceX, he wants to get to Mars.

  • He does not want to be beholden to shareholders and profitability.

  • Musk has therefore publicly said that SpaceX will not go public until the company achieves

  • regular flights to and from mars and thanks to the entrepreneur's understanding of basic

  • economics, that might not be too far off.

  • If you're looking to start a company, you'll need not only an understanding of basic economics

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B1 US spacex tesla musk launch price rocket

Elon Musk's Basic Economics

  • 49 4
    王惟惟 posted on 2018/10/19
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