If there’s a coherent way to describe the entire SpaceX company, highlighting genuine synergies between the business of hurling heavy objects into space and the business of maximizing the ad revenue from people asking Grok if the moon landing really happened, it’s this: SpaceX is uniquely good at knocking down (or obviating) barriers to big infrastructure projects.[4]They’ve reduced the cost of putting a kilogram into orbit by 92%, and with Starship they’re aiming for 99%+.[5] And, terrestrially:
We brought the first cluster of COLOSSUS online in 122 days, repurposing the shell of an existing factory, and the first cluster of COLOSSUS II online even faster in 91 days. As an illustrative comparison, an industry benchmark to bring online a 100 megawatt greenfield data center is approximately two years.
This is a big advantage! Anyone who has ever raised capital and reported an IRR knows that there’s an agonizing gap between when you get money and when it turns into something that produces returns; for institutional investors, this problem has led to a whole ecosystem of financial products basically designed to distort the numbers.[6] In SpaceX’s case, there’s another interesting possibility: if they really do go public with a trillion dollar-plus valuation, and they can support it for a while, they’ll have the lowest cost of capital for anyone investing in frontier technology at that scale aside from certain national governments. At which point the relevant question is over who has the biggest comparative disadvantage in capital allocation: the US government, with all of its weird processes and sensitivity to the needs of various interest groups, or Elon Musk, with his weird processes and tendency to get distracted and found new companies.
It’s just unavoidable that this company is a bet on Elon Musk’s capital allocation skills. In fact, if they raise $75bn, then if you count up the equity and debt raised by SpaceX and xAI, it’s still true that about 60% of the money Musk will be able to deploy through SpaceX will come from this IPO, and the rest from two decades of capital raises by other means. There’s a conservation of Elon Musk weirdness at work: my view of Elon Musk is that he’s pretty technical, great at fundraising, incredible at recruiting talent, even better at motivating that talent to live on remote south pacific atolls or in literal ghost towns, and has a high risk tolerance. He’s also vain, wildly underestimates the difficulty of some problems (running a social network, reducing Federal spending, hitting deadlines), but has sorted himself into domains that maximize the payoff from these traits. Other people disagree, but given that Musk has founded more than one of the most valuable companies in the US, any time you downgrade one skill, you have to mentally upgrade another one. So, if he’s actually nontechnical, he must be that much better at recruiting technical talent; if he doesn’t have an eye for talent, he must be really good at convincing investors to let him take another swing, etc. Eventually you can reach the point where the most coherent Theory of Elon is that the universe is a simulation, he’s the player character, and that he keeps reloading old save files when the random number generator gives him a bad result. But, probably, he’s a very smart guy who thinks he’s somewhat smarter and bets accordingly, and that he hasn’t gone through the last of his massive wealth drawdowns just yet.
Should you trust him to go after a total addressable market of $28.5tr? Should you bet that there really will be synergies between xAI and SpaceX, by way of orbiting datacenters? The good news is that you don’t have to: part of the Elon Algorithm is setting insanely ambitious goals and pushing people to their limits to achieve them, even if Musk periodically takes a break for a ketamine vision quest or to pick a president.[7] Musk is good at setting these plans, but he’s also really good at getting out of the way when people execute the first few steps for these grand ambitions. It’s very hard for SpaceX to support its proposed $1.25tr valuation; even taking some aggressive growth assumptions, that’s probably about 25x run-rate revenue for a company with some serious fixed costs and unavoidable margin expenses. (Even if there’s no marginal cost for a Starlink satellite, the launch costs get capitalized; you’ll be depreciating the satellites, the expenses, even the fuel used, over many years.) What you’re actually underwriting is something very meta: will investors keep being happy to back Musk’s various ventures? Will they treat SpaceX as his main focus, as he tends to—SpaceX seems to be the senior claimant on Musk’s time and money, both of which are pretty valuable. That’s really all you’re betting on: there will probably be some point in the future where the best guess about the return on some space-related project is, say, 7%, and if SpaceX’s cost of capital is 6% it’ll happen, while at 8% it won’t. Somehow, achieving outlier success in reducing the cost of space travel and reducing the timeline for big construction projects creates an investment opportunity that’s mostly a bet on future investor relations.
I’m no schwami but honestly all of this makes Tesla sound like a really bad bet. Why would I invest in a *public 1T$ company* who’s primary pitch is their ability to raise future capital?
Investing in Tesla and SpaceX is basically betting on Elon, which is self-recommending for some and a joyride for others (thinking of some friends), cf. SpaceX’s Anthropic deal for the latter.
Byrne Hobart comments on the recent SpaceX S-1 filing:
I’m no schwami but honestly all of this makes Tesla sound like a really bad bet. Why would I invest in a *public 1T$ company* who’s primary pitch is their ability to raise future capital?
Investing in Tesla and SpaceX is basically betting on Elon, which is self-recommending for some and a joyride for others (thinking of some friends), cf. SpaceX’s Anthropic deal for the latter.