Author Topic: Reusability effect on costs  (Read 179743 times)

Online AncientU

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Re: Reusability effect on costs
« Reply #120 on: 08/21/2016 12:50 PM »
Hadn't seen that quote... there are two different EM statements, then, so we'll have to wait for clarification.
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Offline AC in NC

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Re: Reusability effect on costs
« Reply #121 on: 08/21/2016 07:30 PM »
You're assuming they want to pass the entire savings on to customer immediately. I think they will eventually, but first need to recover some of the many millions they spent developing a recoverable and reuseable system.

Musk has said
Quote
The boost stage is roughly 70% of the cost of a launch. So, if we're able to reuse it and refly it with minimal work between flights, and customers are comfortable with that - and it might take a few years for customers to get comfortable with that - then obviously there's as much as - ultimately - a 70% reduction from where things are today.

Is there something public that supports your belief they will eventually pass the entire savings to the customer?

That statement there by EM reads to me as information about the cost to SpaceX rather than a price (cost) to the customer.  There is a several major drivers of very big incentive for SpaceX to book profits.  Is it not the case that the GS 30% discount is simply the "bait" to hook the customers necessary to proof reliable reuse such that they can go back to selling "launch services" rather than having the customer worry about the booster details?

Absent better information, I'm inclined to believe that the 30% is temporary and that their standard list price for launch services when reuse is no longer considered any different from non-reuse will be the price that maximizes their profit minus the amount of their profit they are strategically willing to concede for various selfish reasons (PR, general boost to the industry).

It would be extraordinarily suprising to me if they passed anything close to full savings on to customers.

Offline Space Ghost 1962

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Re: Reusability effect on costs
« Reply #122 on: 08/21/2016 08:09 PM »
The only thing that matters here regarding external pricing of services is "revenue recognition", e.g. when monies received becomes linked with expenses for that "sale", due to the GAAP "matching principle".

The rest is inside the financial model. The accounting to customer need not match the internal accounting, because they serve different purposes - costs in the organization are structured around operating groups/divisions such that those can be managed comprehensively as a measure of the organization as a whole.

For FAR (and other accounting), the structure is centered around other means to state the functioning of the activity, irrespective of the way that the firm's means for visibility/management of its operations, as the intent is to validate proper adherence/compliance to government rules/requirements. There can be many "layers" of this, that all need reconciliation.

Accounting here is by no means obvious and single valued. Musk does mean what he says, but that does not mean that in every way to account for it, the same gross discounts would apply/match, because all of the definitions/terms are written intentionally differently for those interests for their own agendas, and the differences are considerable as the agendas are. Maddeningly so, and often ironically in the desire for control/containment, they end up working against the agendas, because the rigidity of the forms of accounting neglect the flexibility of a situation.

Online AncientU

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Re: Reusability effect on costs
« Reply #123 on: 08/21/2016 11:33 PM »
<snip>
Absent better information, I'm inclined to believe that the 30% is temporary and that their standard list price for launch services when reuse is no longer considered any different from non-reuse will be the price that maximizes their profit minus the amount of their profit they are strategically willing to concede for various selfish reasons (PR, general boost to the industry).

It would be extraordinarily suprising to me if they passed anything close to full savings on to customers.

The price that the current market can bear is significantly higher than they are charging, and a significant amount of their 'profit' is being rolled back into R&D for future unprofitable-to-the-extreme adventures.
Maximizing their profit doesn't seem to be their business model to date... certainly that could change, but I don't see any indication of that new M.O.   Do you?
« Last Edit: 08/21/2016 11:34 PM by AncientU »
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Offline Ludus

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Re: Reusability effect on costs
« Reply #124 on: 08/22/2016 02:13 AM »
SpaceX has been in a sort of start up mode until now. Trying to break into a very conservative market, having publicly posted low prices was a major selling point. Charging at the market wouldn't have built up a big manifest.

With a breakthrough into reusability they can do even better and have prices no competitor can even get close to. I don't think that implies cutting prices to match reduction in costs. Nothing about posting launch prices implies that they can't cut even better deals with particular customers for any reason they want though. They can price optimally to get all the business that's available to them. A major surge in launch rate and profits is necessary to pay for what would a couple years ago have seemed like ridiculously ambitious spending plans for BFR/MCT.

I don't think SpaceX ever intends to pay dividends or do anything with profits but reinvest them, but they'll need a lot to do what they're planning.
« Last Edit: 08/22/2016 02:49 AM by Ludus »

Offline rsdavis9

Re: Reusability effect on costs
« Reply #125 on: 08/22/2016 11:13 AM »
100 launches per year at 60m a launch = 6 billion dollars a year!
6 billion a year should pay for a lot.
Of course to get 100 launches per year? Is there that many launches from all providers now? At some point we need more people needing things launched. Which means lower prices.
With ELV best efficiency was the paradigm. The new paradigm is reusable, good enough, and commonality of design.
Same engines. Design once. Same vehicle. Design once. Reusable. Build once.

Offline envy887

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Re: Reusability effect on costs
« Reply #126 on: 08/22/2016 12:32 PM »
Is there something public that supports your belief they will eventually pass the entire savings to the customer?
...

"Eventually" is a long time, and SpaceX doesn't have profit as a primary mission. They NEED profit in the short term to accomplish their mission, but it's not their long-term goal.

Per Musk:
Quote
Well, cheaper is one way to say it, another way to say it is we're trying to make space accessible to everyone. We want it to be such that if you want to go to orbit or beyond, then you can do so. We want to open up space for humanity, and in order to do that, space must be affordable.



Also, IMO they will eventually face competitive pressure from someone (probably BO) and have to lower their prices.

Offline oldAtlas_Eguy

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Re: Reusability effect on costs
« Reply #127 on: 08/23/2016 08:23 PM »
100 launches per year at 60m a launch = 6 billion dollars a year!
6 billion a year should pay for a lot.
Of course to get 100 launches per year? Is there that many launches from all providers now? At some point we need more people needing things launched. Which means lower prices.
A simple look at this year 2016 with 16 paid F9 flights and 3 of those being a CRS that's a total of paid for launches made this year of 16*$62M + 3 *$70M = $1.2B.

For 2017 the numbers will be bigger (hopefully) by 50% or close to $2B.
18-19 F9 + 3 FH + 3 CRS + 2 CC
19* $62M + 3*$90M +3*$70M + 2 *$80M = $1.8B

The question is that if 30% reduction in launch price is made in general (all launches no consideration of new or used booster) but a launch rate is increased by 30% to  25 F9 and 4 FH for 2018 over that of 2017 then the revenue will not drop year over year between 2017 and 2018.

Meaning that by 2020 they could easily be at $2B/year in launch operations + Dragon operations (Paid customers not SpaceX internal flights such as RD or "CommX"). If then add a %B or 2 from comm services revenue they could be headed into the $5B+ numbers by mid 2020's. Even with further reductions in launch services prices.

The major impact of lower launch costs is the goal of more launches seen in more tonnage to orbit, whether by using bigger boosters (BFR/BFS or FH) or launching reusable vehicles very often (more than once a week).

Offline MP99

Re: Reusability effect on costs
« Reply #128 on: 08/24/2016 07:09 AM »


You're assuming they want to pass the entire savings on to customer immediately. I think they will eventually, but first need to recover some of the many millions they spent developing a recoverable and reuseable system.

SpaceX ultimately want to drive a larger market - market elasticity.

I suspect they will reserve really low prices for customers who want to order multiple flights in new markets. They may be their own first customer here with their CommSat constellation.

Cheers, Martin

Offline AC in NC

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Re: Reusability effect on costs
« Reply #129 on: 08/24/2016 01:13 PM »
<snip>
 standard list price will be the price that maximizes their profit minus the amount of their profit they are strategically willing to concede for various selfish reasons

It would be extraordinarily suprising to me if they passed anything close to full savings on to customers.

The price that the current market can bear is significantly higher than they are charging, and a significant amount of their 'profit' is being rolled back into R&D for future unprofitable-to-the-extreme adventures.
Maximizing their profit doesn't seem to be their business model to date... certainly that could change, but I don't see any indication of that new M.O.   Do you?

That's not what I said.

Offline john smith 19

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Re: Reusability effect on costs
« Reply #130 on: 08/25/2016 08:09 AM »
That statement there by EM reads to me as information about the cost to SpaceX rather than a price (cost) to the customer. 
Correct.
Quote
There is a several major drivers of very big incentive for SpaceX to book profits. 
That would be the VC investors and any planned IPO.
Quote
Is it not the case that the GS 30% discount is simply the "bait" to hook the customers necessary to proof reliable reuse such that they can go back to selling "launch services" rather than having the customer worry about the booster details?
So you're not making a statement, you're asking a question. AFAIK SX have not set permanent pricing for the flights using reused 1st stages.
Quote
Absent better information, I'm inclined to believe that the 30% is temporary and that their standard list price for launch services when reuse is no longer considered any different from non-reuse will be the price that maximizes their profit minus the amount of their profit they are strategically willing to concede for various selfish reasons (PR, general boost to the industry).
IOW Charge customers what the market will bear and keep the rest of the profits. Just like every launch vehicle services company.
Quote
It would be extraordinarily suprising to me if they passed anything close to full savings on to customers.
Historically this is exactly what has happened.   That's the BAU model.

First off this would destroy a very large amount of good will that SX has built up. Secondly it gives no incentive for organizations that were considering an orbital solution as the least affordable option to solve their business problem to put it up their list of options.

Suspicion that the market would not expand enough to re-coup their investment given the kind of prices (other suppliers) thought they could give customers is probably the  reason why incumbents have never gone any further than paper exercises (usually government funded) to do this.

To get significant market growth SX has to lower it's prices for some of its launches to see price elasticity. How much is significant is a tricky question.  Some think 30$ is significant. Some do not.
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Offline Zach Swena

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Re: Reusability effect on costs
« Reply #131 on: 08/25/2016 09:21 PM »
It is easy to get confused between cost savings and prices.  Personally, I think spacex will make the reused booster prices just low enough to gauge how much growth room there is for lower priced launches.  Aside from trying to prove the launch market can grow, they probably will maximize profit as much or more then other launch providers for the reused vehicles.  The motivation for this would be to fund the development of their mars architecture. 

Once they have the mars rocket operational, they can probably do two stage RTLS for almost any payload class currently used.  That is the point where it makes sense for them to offer the extra low launch cost.  That way they can increase the flight rate of their super heavy fully reusable launcher with both minimal fixed and incremental cost compared to the current situation where they have certain manufacturing capacity limits on expended parts for each launch short of expanding factory and processing space.

Offline wannamoonbase

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Re: Reusability effect on costs
« Reply #132 on: 08/25/2016 09:56 PM »
It is easy to get confused between cost savings and prices.  Personally, I think spacex will make the reused booster prices just low enough to gauge how much growth room there is for lower priced launches.  Aside from trying to prove the launch market can grow, they probably will maximize profit as much or more then other launch providers for the reused vehicles.  The motivation for this would be to fund the development of their mars architecture. 
...

Agreed, and there are a lot of unknowns and risks while developing reuse.  It'd be foolish for SpaceX to go too quickly or give away too much early on.

The reuse price does need to be low enough to attract customers, but that maybe avoided by providing a quicker launch for some.  Wait for a new booster or fly soon on a refurbished vehicle.

Mars ain't cheap, make profit when and where they can.
SpaceX, just a few things planned for 2018: FH, Starlink Prototypes, Block 5, Dragon 2, Increased launch rate.

Offline AC in NC

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Re: Reusability effect on costs
« Reply #133 on: 08/26/2016 01:34 PM »
There is a several major drivers of very big incentive for SpaceX to book profits. 
That would be the VC investors and any planned IPO.
Incomplete answer and not at all the two most important ones that I was considering:

1)  Employees who can monetize some of their equity-based compensation via annual or bi-annual liquidity events. [Specifically discussed by EM in an Employee Letter]
2)  Capital to plow back into the broader goals.

Quote
Quote
Absent better information, I'm inclined to believe that the 30% is temporary and that their standard list price for launch services when reuse is no longer considered any different from non-reuse will be the price that maximizes their profit minus the amount of their profit they are strategically willing to concede for various selfish reasons (PR, general boost to the industry).
IOW Charge customers what the market will bear and keep the rest of the profits. Just like every launch vehicle services company.

Seriously?   How difficult is it to read the text in RED italics  underline bold and still conclude that IOW I'm saying MAX PROFITS?  Especially when I said "minus" "strategically" "concede[d profit for]" "PR, general boost to the industry"?


Quote
Quote
It would be extraordinarily suprising to me if they passed anything close to full savings on to customers.
To get significant market growth SX has to lower it's prices for some of its launches to see price elasticity. How much is significant is a tricky question.  Some think 30$ is significant. Some do not.

I'm simply trying to suggest, passing along all savings is IN MY OPINION very unlikely whereas others have said they expect that to be the case.  They have very valid reasons to not pass along a reasonably sized portion of the savings, reasons THAT FURTHER THE BROADER MISSION OF SPACE-X and reasons that are not Greedy or Just like every other Launch Vehicle Services Company. 
« Last Edit: 08/26/2016 01:56 PM by AC in NC »

Offline Zach Swena

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Re: Reusability effect on costs
« Reply #134 on: 08/26/2016 01:58 PM »
I'm simply trying to suggest, passing along all savings is IN MY OPINION very unlikely whereas others have said they expect that to be the case.  They have very valid reasons to not pass along a reasonably sized portion of the savings, reasons THAT FURTHER THE BROADER MISSION OF SPACE-X and reasons that are not Greedy or Just like every other Launch Vehicle Services Company.

Agreed, the action (maximizing profit in the near term) is similar to other launch services companies, but the motivation is vastly different.  Spacex has a goal of developing the technology, equipment, and infrastructure to allow human space travel at the planetary level and beyond.  They will do what best forwards that goal.  I would also argue that waiting for the huge price cut till they have a fully reusable vehicle also makes the most sense if their goal was only to reduce launch prices drastically.  It does not make sense to expand the production of expendable components to the scale to meet the theoretical demand that they would need to close the business case for a minimum priced falcon 9 when they could spend that same capital to develop a fully reusable vehicle.  Full reuse also should have a much better ratio of profit to fixed infrastructure costs even at the lower price.

Offline envy887

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Re: Reusability effect on costs
« Reply #135 on: 08/26/2016 02:29 PM »
...
I'm simply trying to suggest, passing along all savings is IN MY OPINION very unlikely whereas others have said they expect that to be the case.  They have very valid reasons to not pass along a reasonably sized portion of the savings, reasons THAT FURTHER THE BROADER MISSION OF SPACE-X and reasons that are not Greedy or Just like every other Launch Vehicle Services Company.

I did say EVENTUALLY in the post that started all this. Eventually, a number of factors will force them to pass on a significant majority of the launch cost reductions in the form of price cuts to a significant number of customers (though perhaps not all customers). Those factors could be competition, a desire to dramatically increase launch rate, and the simple fact that Mars colonization isn't feasible at current prices.

For instance, I doubt they will charge internal customers (e.g. CommX) prices much above reuseable cost for a launch. However, Falcon 9 might be retired or significantly different from it's current form by the time they do that for external customers.

Online AncientU

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Re: Reusability effect on costs
« Reply #136 on: 08/26/2016 02:31 PM »
I'm simply trying to suggest, passing along all savings is IN MY OPINION very unlikely whereas others have said they expect that to be the case.  They have very valid reasons to not pass along a reasonably sized portion of the savings, reasons THAT FURTHER THE BROADER MISSION OF SPACE-X and reasons that are not Greedy or Just like every other Launch Vehicle Services Company.

Agreed, the action (maximizing profit in the near term) is similar to other launch services companies, but the motivation is vastly different.  Spacex has a goal of developing the technology, equipment, and infrastructure to allow human space travel at the planetary level and beyond.  They will do what best forwards that goal.  I would also argue that waiting for the huge price cut till they have a fully reusable vehicle also makes the most sense if their goal was only to reduce launch prices drastically.  It does not make sense to expand the production of expendable components to the scale to meet the theoretical demand that they would need to close the business case for a minimum priced falcon 9 when they could spend that same capital to develop a fully reusable vehicle.  Full reuse also should have a much better ratio of profit to fixed infrastructure costs even at the lower price.

I'm among those who think SpaceX will pass the bulk of savings from reuse on to customers immediately.

Reasoning goes like this:
1. SpaceX is currently funding a massive research and development effort with profit margin as-is*.
2. A significant portion of profit seems to be from CRS and other NASA support efforts, which are solidly booked into mid-2020s (over 20 NASA flights on manifest). These flights are also supplying a nice stream of shinny new, completely funded boosters.
3. Infrastructure development (heading for four launch sites, refurb facilities, barges, etc.) is based on launching greater than or equal to the stated goal of 2 per month per pad... 100 per year.
4. Lowest price in the market has fleshed out the SpaceX manifest to $10ish Billion and growing, though current manifest is only a quarter of the goal of 100 flights per year.
5. The missing link in this entire strategy is a display of market elasticity...
6. Lower prices -- reflecting the bulk of savings from reuse -- are the only path to keeping the manifest growing and priming the market elasticity pump.
7. Increasing flight rate with existing profit PER FLIGHT (on lower cost vehicles) improves profitability, so Raptor and BFR/BFS will have increasing R&D revenue.

So, increasing flight rate is the way SpaceX will maximize cash flow, near term and long.
My opinion only.

 * If it is true that SpaceX is losing lots of money on each flight, they'll be out of business soon. 
All of this will be OBE.
"If we shared everything [we are working on] people would think we are insane!"
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Offline envy887

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Re: Reusability effect on costs
« Reply #137 on: 08/26/2016 02:39 PM »
...
 * If it is true that SpaceX is losing lots of money on each flight, they'll be out of business soon. 
...

They would have been out of business a long time ago if they were losing lots of money on every flight. They already have way too many negative cash-flow projects for launching Falcon 9's to be anything other than profitable.

Offline AC in NC

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Re: Reusability effect on costs
« Reply #138 on: 08/26/2016 02:50 PM »
I did say EVENTUALLY in the post that started all this. Eventually, a number of factors will force them to pass on a significant majority of the launch cost reductions in the form of price cuts to a significant number of customers (though perhaps not all customers). Those factors could be competition, a desire to dramatically increase launch rate, and the simple fact that Mars colonization isn't feasible at current prices.

For instance, I doubt they will charge internal customers (e.g. CommX) prices much above reuseable cost for a launch. However, Falcon 9 might be retired or significantly different from it's current form by the time they do that for external customers.

I generally agree but here is how I see the factors you cited.

1)  Competition.  Starting from the premise of Reusability, I don't see where the competition is coming from but it may develop and pricing certainly permits and aggressive stance toward it if it develops.
2)  Launch Rate.  Starting from the premise of Reusability and more launch facilities, there's plenty of room to increase launch rate by consolidating the existing market and with modest pricing-based growth.  I tend to think it will be hard to drive growth that outweighs the reduced margins of very aggressive price reductions for typical commerical customers.  I could be wrong.  Just gut-feel.
3)  Mars.  One of the "Strategic Concessions" I've always envisioned are in-house launches (CommX, staging to LEO), pro-bono launches (for some kind of worthy non-commercial endeavor), and Mars Colonization at-cost launches.  The profits from the commercial side enable these low-margin services.




Offline Kabloona

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Re: Reusability effect on costs
« Reply #139 on: 08/26/2016 03:32 PM »
You're assuming they want to pass the entire savings on to customer immediately. I think they will eventually, but first need to recover some of the many millions they spent developing a recoverable and reuseable system.

Musk has said
Quote
The boost stage is roughly 70% of the cost of a launch. So, if we're able to reuse it and refly it with minimal work between flights, and customers are comfortable with that - and it might take a few years for customers to get comfortable with that - then obviously there's as much as - ultimately - a 70% reduction from where things are today.

Is there something public that supports your belief they will eventually pass the entire savings to the customer?

That statement there by EM reads to me as information about the cost to SpaceX rather than a price (cost) to the customer.  There is a several major drivers of very big incentive for SpaceX to book profits.  Is it not the case that the GS 30% discount is simply the "bait" to hook the customers necessary to proof reliable reuse such that they can go back to selling "launch services" rather than having the customer worry about the booster details?

Absent better information, I'm inclined to believe that the 30% is temporary and that their standard list price for launch services when reuse is no longer considered any different from non-reuse will be the price that maximizes their profit minus the amount of their profit they are strategically willing to concede for various selfish reasons (PR, general boost to the industry).

It would be extraordinarily suprising to me if they passed anything close to full savings on to customers.

Let's not forget that Musk is not an ordinary businessman. He has talked at length publicly about the potential cost savings of reuse, implying that the customer would benefit from those savings. He seems truly passionate in the belief that spaceflight is too expensive *for the customer* and after all his talk, he's now in a position to start backing it up.

So yes, he has a business incentive to make a profit, but he also has a personal "mission" to reduce to cost of spaceflight, and I expect him to push the latter as aggressively as he can while keeping an eye on the bottom line.

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