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slash Wendover imagine a $2,000 car or a
$100 laptop or a $70 iphone or imagine
any product ten times cheaper than it
was
imagine the fundamental market change
that would bring imagine the amount of
demand that would be for that two
thousand dollar car or $100 laptop or
$70 iphone that's what Elon Musk
imagined 15 years ago when he sat on a
pile of a hundred and sixty five million
dollars Elon Musk's businesses are all
centered around some of 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 XCOM which was
quickly bought bike Infiniti the
creators of PayPal so when PayPal was
bought by eBay in 2002 Musk's 11.7%
ownership of the company translated to a
hundred and sixty-five 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
problem it was too expensive the cost of
launches was absolutely immense and even
when musk tried to buy decommissioned
Russian ICBMs he couldn't find a way to
pull off the project but he had
discovered something the space launch
industry was a ripe for disruption
here's Joseph the economics expert from
real-life lore to explain why the rocket
development and space launch companies
before SpaceX 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 that's
assembling the Rockets 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 percent 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 fifty thousand to one
hundred thousand dollars each but since
they developed them internally they only
cost five thousand dollars each to build
a dramatic improvement in reducing cost
Joseph's firm real-life floor has a
brand new book which includes two
fantastic chapters explaining simple
economic concepts like this that'll
linked 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 5300 parts in a
Tesla car but for the most part it
doesn'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
manufacturers panasonic BYD and LG Chem
make a combined 63 percent of the
world's batteries Tesla therefore has
historically just bought batteries from
Panasonic at a cost of about $200 per
kilowatt hour but that means that
Tesla's smallest battery pack the 50
kilowatt hour version costs $10,000 just
in components when you're trying to sell
a $35,000 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 per kilowatt hour which
would either double the range or have
the price of that 50 kilowatt hour
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 lines
they're in the u.s. now this probably
seems counterintuitive why 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 u.s. believe it or
not this isn't a PR move it actually
makes sense for the two companies Tesla
and SpaceX is 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 u.s. 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
its offices and manufacturing lines are
all under one roof the Tesla factory in
particular is also heavily automatized
and the u.s. 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 out of fifth of the price but as
mentioned Elon Musk wants set to fall to
a tenth here's the key for that the fuel
used in the Falcon 9 rocket only costs
about $200,000 per launch it'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 of 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 the United
Launch Alliance is military launch price
SpaceX is 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 problem
people 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 market
normal 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 national security reasons and
they'll pay whatever it takes but Elon
Musk's life goal is to get humanity to
Mars
that's why SpaceX exists and 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
a worldwide could hook into the network
using an inexpensive ground receiver if
SpaceX got just 50 million users out of
the seven 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 competitions
the whole commercial aspect of SpaceX
essentially exists too
fun 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 the entrepreneurs understanding
of basic economics that might not be too
far off if you're looking to start a
company you'll need not only
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