Monday, October 17, 2011

Risk Pricing for the Reusable Falcon 9

In my last post I explored how the SpaceX's reusable Falcon 9 (rF9) could threaten those companies offering suborbital launch services.  

Discussion has focused on the risks preventing the rF9 from reaching the optimistic breakeven price point of $130 per kg (discussed in my last post).  Here are a few of the risk categories you have raised:

  • Increased variable costs: Elon may claim only $200K of propellant per flight, but the variable costs of an rF9 flight will surely be higher
  • Reduced number of flights: When you factor in the complexities of reusing a launch vehicle and the potential for a crash or loss of vehicle
  • Reduced payload capacity: Adding reusability will increase the mass of non-payload components – reducing the payload mass

What rF9 breakeven price points might we expect if we take these concerns into account?  In the table below, I explore these risks and their impact on breakeven price per flight and breakeven price per kg.  

In the second column are the breakeven prices today for an expendable Falcon 9.  This is the upper end of cost.  Weight any of these risks to the point you get price points beyond $5K per KG and customers will prefer the current Falcon 9 over the reusable version.  The third column shows the optimistic assumptions from my last post.  Columns four through six:

  • Increase variable cost per mission from $200K to $2M
  • Reduce reusability from 47 missions per vehicle down to only 10 missions per launch vehicle
  • Reduce payload capacity by 50% from 10,450KG to 5,225KG

These risk values give us a range we can talk about.  Even variable costs of $2M per flight, only 10 flights per vehicle, and half of the payload mass consumed with reusability hardware, SpaceX should be able to reach breakeven price points of about $1500 per KG and $7.5M per flight. 

And the great thing about risks…they get retired.  Be as pessimistic as you want to be about the capabilities of the initial versions of the rF9.  Variable costs will drop over time.  Flight rates per vehicle will rise, and payload mass will creep back up.  The key has been (and will always be) flight rates.  I wouldn't be surprised to see SpaceX subsidize their first generation rF9, offering first generation customers prices SpaceX won’t be able to satisfy profitability until the second generation rF9 – all in the name of increased flight rates.

How optimistic or pessimistic are you about rF9 capabilities?  Here is an interactive spreadsheet for you to explore your own risks and their effects on breakeven prices.    

1 comment:

  1. Of all the companies competing in the space business, Space X has the coolest name, but they worry me sometimes. How will they ever make a profit? More importantly, at these prices how will I ever afford to get myself into space?