Main Engine Cut OffThe SpaceX Discount
Gwynne Shotwell made some statements this week regarding SpaceX’s used booster discount:
We are not decreasing the price by 30 percent right now for recovered and reused vehicles. We’re offering about a 10 percent price reduction. I’d rather fly on an airplane that’s flown before as I’d feel more comfortable with its reliability.
At this point that is a reasonable reduction and then, as we recover some of the costs associated with the investment that we put into the Falcon 9 to achieve that, then we might get a little bit more. But in general, it’s about 10 percent right now.
In response to this, I saw a lot of people scoffing and saying “Only 10 percent? They had said 30!” The sentiment seemed to be that SpaceX missed their mark and can’t offer a 30 percent reduction right now, rather than realizing that they are making a sensible decision.
Could SpaceX offer a 30 percent discount and still make money on a launch? Probably. Do they have any reason to do so? Absolutely not.
SpaceX is already way ahead on price. ULA wouldn’t be pushing so hard for the Air Force to consider things other than price for GPS III launches if SpaceX didn’t have a massive price advantage.
Truth is, SpaceX could refly cores and charge exactly what they are charging for a brand new core just fine. Instead, they’re taking the PR win and offering a reused discount—it’s a great way to show off how far ahead they are in reusability.
A 10 percent discount puts the price at around $56 million. A 30 percent discount would cut that to $43.4 million. The difference between $43.4 and $56 million is negligible, especially when compared to Ariane 5, Atlas V, Proton, and others in that class.
In other words, SpaceX would not take any more customers away from Ariane 5 at $43.4 million than they would at $56 million (or even than they do now at $62 million). Same goes for beating out Atlas V for government launches (except about $20 million higher across the board). Instead, they’re able to operate with higher margins and recoup their research and development costs.
By offering a 10 percent discount now, they’re also positioning themselves incredibly well for the future. Next-generation vehicles like Vulcan and Ariane 6 typically target $100 million per launch. In a few years when these systems come online—ideally at $100 million (though I doubt it for the two named above)—SpaceX will already have a $40-50 million advantage, and can easily increase that gap to $50-60 million by increasing the discount.
At that point, reused cores will be flying consistently, and SpaceX will have no problem going lower. Ultimately, they will get to a 30 percent discount, but only when they need to given the market dynamics.
Scoff all you want at “only” a 10 percent discount, but it’s a win all the way around for SpaceX. Great PR, higher margins, headroom for the future.