FYI - For Your Innovation: Big Ideas Monday Mini: Orbital Aerospace
ARK Invest 5/22/23 - Episode Page - 18m - PDF Transcript
Welcome to the Big Ideas Monday mini-series, brought to you by the For Your Innovation
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Hi everyone, I'm Sam Kors.
I'm ARC's director of research for autonomous technology and robotics.
And today we're going to be diving into the orbital aerospace section of Big Ideas 2023.
Before we get started, we need to touch on the risks of investing in innovation, of which
there are many.
There's the rapid pace of change.
There's the exposure across all sectors and market caps, a lot of uncertainties and unknowns,
which make it a risk, but also what make it so exciting.
And the rapid pace of change there as well.
There are regulatory hurdles that come into play, as well as political issues.
And obviously it's a competitive landscape out there with people competing for these
big market opportunities ahead.
But now that we've gone through the risks, we can dive into the exciting part of orbital
aerospace.
And at ARC we often talk about convergence.
And orbital aerospace is one of these areas that really takes from every different sector
because it's such a complicated and hostile environment in space.
So it's very complicated.
So we're using artificial intelligence to help land rockets and design rockets.
We're using 3D printing and robotics for operations.
There's mobile connectivity and all of these devices connecting to satellites.
So all of these things are tying together to make this possible.
But at the very high level, we think that in the coming decade, satellite broadband and
hypersonic flight could generate annual revenues of $84 billion and $270 billion, respectively.
So very big opportunities.
And we're really just at the start of this.
And what's driving the big cost decline here is reusable rockets.
And we think that in the coming years, reusable rockets should lower launch costs by an order
of magnitude from where they are, or even two.
But first, let's look at this chart on the left and kind of see how we got where we are.
If you look back to 2006, you really had two players in space.
You had the Russian Soyuz rocket, and you had the United Launch Alliance Atlas V. And
over time, these costs just started ballooning.
And so you can see over roughly a decade, both of those costs came in and just steadily
increased.
And then in 2015, you had SpaceX come in with the Falcon 9, and it wasn't even a revolutionary
price.
It's actually the same price as the Russian Soyuz cost in 2006.
But then what changed everything was being able to reuse this rocket.
And so if we look over on this chart on the right, you can see the Falcon 9 in 2015 was
over $4,000 per kilogram to low Earth orbit.
But already in 2022, because of the reusability, it's below $2,000.
And we think that the next generation rocket, the Starship rocket, could bring those costs
all the way down to $200 per kilogram to low Earth orbit, or even to $20 longer term.
And so some metrics on this, SpaceX has reflow in the same booster 14 times now, and doing
so allowed them to nearly double its launch cadence, and it launched 61 rockets in 2022.
And so with cost declines being so key here in reusability, how do you follow along?
What's the key metric to look at?
And really the key thing here is that time is a good indication of cost.
And so you can see that when SpaceX first reused its rocket in 2017, it took roughly
a year to reuse that first rocket.
Then last year in 2022, that came all the way down to just 21 days.
You can compare that to the Space Shuttle, where the fastest turnaround time was 54 days,
and on average, it took 252 days.
And so if you're keeping that correlation between time and money, our modeling suggests
that it costs less than $1 million to refurbish the first stage of a Falcon 9 rocket, compared
to $1.5 billion for the Space Shuttle.
So that's pretty, pretty profound and changing the competitive landscape and what is possible
in space.
In fact, it's really opening up a whole new part of space.
And so we're going to touch on the difference between Leo, which you see on the left, and
Geo.
And so what are those two acronyms?
Well, Geo is geostationary orbit, and those are satellites that sit roughly 22,000 miles
above the Earth, and are typically very large satellites, and they need to be very powerful
because they're so far away.
But what's the positive?
Why would you send a geostationary satellite?
Well, if launch costs are high, you can just send three geostationary satellites up.
And since they're so far away, you can cover the whole globe with just three satellites.
So you can provide global coverage.
But the downside here is, one, these satellites then stay up there for a very long time, 15-plus
years.
If you're using a computer, if you've used anything electronic, you know that in just
a couple of years, it can become outdated technology.
The other downside is that with it being so far away, there's a lot of latency.
So it takes time for a signal to go from the surface of the Earth up 22,000 miles and then
back down.
And so you can't do things that require low latency, like video calls or gaming, things
like that.
And then we can talk about Leo, and that's low Earth orbit.
And so here, the downside, historically, was that they're so close to the Earth that you
actually need dozens, thousands, or tens of thousands of these satellites to get global
coverage.
And if those launch costs are very high, then this is not an economic thing to do.
But since you have the launch costs that are coming down so dramatically, this opens up
the low Earth orbit arena for economic activity.
And now what's a positive thing here is you have low latency.
So you can have incredible normal connection through a satellite.
And then the other interesting thing is you can put high powered satellites in low Earth
orbit, and this is what's allowing all of these companies to all of a sudden come out
and offer satellite to smartphone capability.
That was something, if you go back five, 10 years, people thought was not possible.
But now, just in the past year, I think we've had five companies come out.
Some have already made it capable.
Others are working on announcing it in just the next year or two.
So it's really changed the game as far as what's possible in space.
And so this third cost decline, which is opening up the space ecosystem, is the antenna cost
decline.
And so you've got launch costs coming down.
You've got satellite costs coming down.
But if you need an antenna that costs $10,000 to connect to that satellite, then it's pretty
hard to acquire customers.
But what we're seeing is these costs are falling in line with Wright's law.
And actually what we see is that we think that the cost of an antenna could drop to
$300 by the end of 2027.
And what we're seeing is these costs are already low enough where we're seeing rapid adoption
from the higher end of the market.
So SpaceX has over one million Starlink terminals deployed.
And actually just today, I'm recording this March 13th, someone from SpaceX came out and
said that they have well over one million customers.
So we're continuing to see demand there and cost declines on the antenna side as well.
And so all of these cost declines are coming together.
And we're actually seeing the elasticity of demand for satellites.
And you can see that from 2018, there were fewer than 2,000 satellites orbiting Earth.
In 2022, at the end of the year, there was roughly 5,500.
So more than a doubling in just four years.
And if you look at all of the planned satellite launches out there, in the next decade, people
want to launch over 100,000 satellites.
So that's pretty clear demand for launch capability for these satellite constellations.
And whether or not all of these get launched, I think, is something else.
But there's clearly this race to put these constellations in the sky.
And so if we wrap all of these things together, there's actually a very interesting rights
law application that shows that satellite bandwidth costs are coming down in a consistent
fashion.
And so satellite bandwidth costs should decline roughly 45% for every cumulative doubling in
gigabits per second in orbit.
And so bandwidth, what does that mean?
If you're watching Netflix, typically it requires 5 to 10 megabits per second in order
to stream high definition video.
And so bandwidth is kind of how much data can you move at one time?
And if you look over here on the left side with this very first data point, it used to
cost $300 million per gigabit per second in orbit.
But now it's already come down to $40,000 per gigabit per second.
So that's a 7,500-fold increase.
That alone is pretty mind-blowing.
But we're kind of just at this inflection point.
And we think it's going to fall another 40-fold from where it is today with next-generation
launch capability to just $1,000 per gigabit per second in the next five years.
And so what does that mean on a tangible level without bandwidth and all of this?
It means that one gigabit per second could serve roughly 200 people using internet relatively
freely.
And at a capital cost of $1,000 per gigabit per second, you could recoup your investment
with a one-time charge of $5 per customer.
So all of a sudden, it becomes extremely economic to put satellites for internet broadband in
space.
And so when we go and we size this opportunity, how do we get to this $84 billion in annual
revenue over the next 10 years?
This first bucket, I think, is pretty familiar to a lot of people.
It's all of the individuals and households in the world that don't have access to broadband
currently.
Even that a large portion of these individuals and homes are in developing nations.
You can see the annual broadband bill would be much lower.
But given the size of that addressable market, that's still a $40 billion opportunity.
Another big opportunity, this one's pretty surprising, is the RV market.
And you might wonder why it was one of SpaceX's first offerings for RVs.
So there's roughly 11 million RVs, and you could charge those or what SpaceX is trying
to charge is roughly $1,600 annually for that connectivity, which would be the $18 billion
opportunity for boats as well, for commercial aircraft.
And we're seeing some of those contracts being signed.
And then you also have these bigger ships, cruise ships, warships, commercial ships.
And so when you add all of these opportunities together, that's how we come to that $84 billion
annual addressable market.
Then if we look a little bit further out, there's an even bigger opportunity, we think,
for this hypersonic point-to-point flight and logistics.
And so the way to think about this is right now it takes 14, 15 hours to get to Japan
from New York.
If you were to take a rocket, it could save you roughly 13 hours.
You could get there in two to three hours.
And if we look at what people and companies are willing to pay for saving time on private
flights, it's roughly $15,000 for every two hours saved.
So if you're saving 13 hours and you're willing to pay $15,000 for every two hours saved,
then in theory, people should be willing to pay $100,000 for this ticket.
And if you look, you can kind of see that's kind of the cost that we think it would be
today to send a average-sized 90-kilogram individual up in a Falcon 9.
We think in the future, with those next-generation launch capabilities and those costs coming
down, it won't necessarily be $100,000.
It could actually come down all the way to $18,000 in the medium term and maybe $1,800
in the longer term.
And at that point, you're really competing with normal business-class flights.
And so how do we size this opportunity from the quantity side?
There's roughly 4.5 billion people who flew in 2018.
This is really only targeting long flights.
So 15% of those flights were longer than seven hours.
So that gets you to a 680 million passenger opportunity.
And then you're really looking at just the people who can afford to pay for those private
flights.
So that's just 0.4% of the 680 million, which gets you to 2.7 million people.
And if they're willing to pay $100,000 per hypersonic flight, that gets you to this $270
million in annual revenue opportunity.
And as costs come down, we could see this market expand beyond that.
So thank you.
That was a lot of detail, I think, for how we're thinking about orbital aerospace.
And I welcome all of you to go to our website to download the full Big Ideas 2023 deck.
And you can see this incredible modeling for all of the different areas where we're focused.
Thank you.
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