[[Home|🏠]] <span style="color: LightSlateGray">></span> [[Interviews]] <span style="color: LightSlateGray">></span> October 24 2024 **Insider**: [[Peter Beck]] **Source**: [Markets with Madison](https://www.youtube.com/watch?v=B0bXJgDD8lk) **Date**: October 24 2024  🔗 Backup Link: https://www.youtube.com/watch?v=B0bXJgDD8lk ## 🎙️ Transcript >[!hint] Transcript may contain errors or inaccuracies. **Madison:** Hi Madison, hi Aaron, welcome to Rocket Lab. I'm not going to touch any button, I promise. I'm too terrified to touch anything. This is insane, I want to hug it. I'm speechless. I don't know what to say. I'm standing on a rocket launching platform. **Aaron:** So LC2 is dedicated for Electron and HASTE missions, but from what you've just shown me, Aaron, it's way too small for Neutron. So that baby's going to launch next door at LC3, right? **Madison:** Can we go see it? Let's go! Before we left for the United States, we came here to Rocket Lab's Mission Control in Auckland, New Zealand, where I spoke to Sir Peter Beck about the readiness of Neutron and why some may be doubting him and his company's execution. **Peter Beck:** I think there's a lot of suspicion within our industry, and we always—my CFO always reminds me that we have the best house on the worst street. ### Rocket Lab Neutron **Madison (narration):** This is the engine that will fire Rocket Lab's next rocket, Neutron. The space company dropped this hot fire hype video last month showing the Archimedes being tested at NASA's Stennis Space Center in Mississippi, cooling down critics who suggested the company had complications hitting this critical development milestone. Rocket Lab revealed its bold plan to build a bigger rocket in March 2021. **Peter Beck (archive):** But there's some things we said we would never do. But we're going to build a big rocket. It's called Neutron. **Madison (narration):** The 43-meter high medium-lift launch vehicle will be twice the height of its existing Electron rocket and almost six times its diameter, allowing Neutron to carry 43 times more mass to low Earth orbit. Both rockets are made of carbon composite, but the key difference between them is reusability. While Rocket Lab later added recovery to Electron, Neutron will have it built in from the beginning, with the ability to re-enter Earth's atmosphere and land on its launchpad to be refueled and reflown. Parts are already under construction, and a machine has been built to automate the production of its carbon fiber components in the United States, where Neutron will launch from. But the big question is when. **Peter Beck (archive):** Launching 2024. **Madison (narration):** But that timeline has now slipped slightly, with Sir Peter Beck announcing this year that Neutron will now launch in mid-2025. **Peter Beck (archive):** On that agenda, Neutron would still be the fastest ever commercially developed medium-lift rocket. Because at Rocket Lab, when we say we're going to do something, we do it. **Madison (narration):** But some still have their doubts. Short interest in Rocket Lab rose 5% in the past month according to Market Beat, taking total short interest in the company to 19.8% of its float. With less than a year to go to launch, we visited Beck in Auckland to ask for a development update and how he thinks about investors' emotional ties to Neutron. ### Interview with Peter Beck **Madison:** Sir Peter Beck, good to see you. **Peter Beck:** Good to be back. **Madison:** Great to chat. Thank you so much for doing this. This is all about Neutron readiness. So let's go back to the beginning. You announced Neutron in was it March 2021, around then? **Peter Beck:** It would have been about then, yeah. ### Ambitious Target **Madison:** So that's now—we're end of 2024—it's roughly about 4 years ago. You thought that you were going to be launching a rocket by now. Obviously, we're not there yet. How would you rate the pace of the Neutron program so far? **Peter Beck:** Yeah, I mean, it's a crazy pace. And although we're call it 6 months behind or slightly more, you should put that in the context of a rocket program. A rocket program, you measure in decades, not in years. So it was an ambitious target, and that's the way we roll. But the progress of the team and the vehicle and the pad and the infrastructure and all the stuff that goes along with it has been pretty astounding. **Madison:** We are going to talk about all of those details. You mentioned an ambitious target. Is 2025 ambitious, or is that realistic at this stage? **Peter Beck:** Well, we always caveat everything we say with "it's a rocket program," right? And the program is on track for that launch date, and everything's good. But it only takes one small element to reset those sorts of things. But as it stands today, no, we're feeling and looking good for that. But like I say, caveat, it's a rocket program. Like a bad day at the office generally means you have no office anymore. So some of those things can set you back. ### Infrastructure **Madison:** So tell us everything that has been done so far. You have—oh my goodness—tested Archimedes with the hot fire, you've built the pad for LC3, you've got the water tower up changing the skyline at Wallops, you're building the new ICF. What's yet to be done? **Peter Beck:** There's a lot. People think of a rocket program, and it's just the rocket. But the rocket is actually a relatively small element. The pad infrastructure is just like—we take all of the concrete in the larger region for days on end just to do one thing. So these infrastructure projects are just massive, and the amount of capital and time that goes into putting steel and concrete in the ground is enormous. Then the factories itself—we bought the Virgin Orbit Factory and just converted that. That one large factory that used to make whole rockets, it just makes engines now for Neutron and Archimedes. Same with engine test cells—there's just so much infrastructure that goes in and around actually putting something on the pad. The actual rocket itself, the tanks and whatnot are a relatively small element. These projects are just massive infrastructure projects. ### Difficulties **Madison:** So if you look at everything that's still yet to be done until you can actually assemble all the parts for Neutron, what is the most difficult and the sort of most precarious? **Peter Beck:** I'd say all of the really big high-risk items, we've kind of bought down. I mean, you can break a rocket program into kind of three things: 1. One is infrastructure, which I talked about 2. One is propulsion 3. And the other is structures or tanks Propulsion—we really took quite a different path with propulsion. For example, normally you develop elements of an engine, and you put them on an engine test stand, and you test like a thrust chamber or a combustion chamber. Then you might test elements of a pump, elements of a valve, and then years later, you bring them together. And then years later from that, you actually put it on a production line and produce it. We didn't take that approach. I mean, we built 500-something engines. We kind of know what we're doing these days. So we built the production line for that engine. Everything, that first engine that went on the stand—there was no industrial articles on there, it was all flight, whether it be wiring looms, engine controllers, valves, pumps. It's built on a production line by production technicians, and that is the engine that we intend to fly. That is an approach—it's a little bit risky in the fact that if that engine had a fundamental issue or performed very badly, then the program would be behind. But on the flip side to that, now we're banging engines out of a production line. So the program, at least on the propulsion side, is now ahead. So it's swings and roundabouts in that sense. ### Budget **Madison:** Everyone always talks about the timeline for Neutron, but time is obviously money. How much money have you spent on Neutron, and how much of the expected total initial cost? **Peter Beck:** When we first came public, we kind of said that Neutron was going to consume somewhere between 250 and 300 million USD, and we're on target for that. As far as holding to budget, that's pretty impressive. But once again, you always have to put this into context. Vulcan, the Vulcan launch vehicle from ULA—I think Tory [Bruno] recently publicized it was somewhere between 7 and 9 billion to put that vehicle on the pad. So a few million is crazy small to do what we're going to do. And then there's more expenditure after that, of course, as we scale. Because that gets us a rocket on the pad at a particular rate, but we hope to have a pretty decent clip on these vehicles. So you need to continue to invest in the program as it goes through. ### Capital **Madison:** The reason I ask is because I was wondering if you might need to raise capital to finish it? **Peter Beck:** No, I mean, you saw us do that convertible note earlier in the year, and that was really to put some powder in the barrels for acquisitions. As far as Neutron goes, we don't need to raise any capital for that project. **Madison:** Paid for? **Peter Beck:** Yeah, yeah. And of course, things start to get much more interesting when we start flying customers' payloads because the balance sheet looks totally different because it's a $55 million launch at that point, whereas right now, it's all R&D. So things change pretty quickly. ### Patience **Madison:** You mentioned at the very beginning of this conversation how rocket development timelines are typically measured in decades, not years, and delays of this scale or of even larger are not indifferent in this industry. You only have to look at Blue Origin and New Glenn, which has now impacted your NASA ESCAPADE mission, which you made some satellites for. But how patient do you think investors generally speaking are in watching and waiting for developments in this industry? **Peter Beck:** Probably not as impatient as I am. I mean, I think if you're investing in a rocket company and you've done your diligence, then these things should be part and parcel really. But at the end of the day, we're a commercial entity, and we're trying to build a profitable company. So nobody is more motivated than us to get through that development and then through the scaling and all the rest of it. But I think anybody in the space industry has to be a little bit patient for sure. **Madison:** So why did you feel the need to drop in an Archimedes engine hot fire hype video? **Peter Beck:** Oh yeah, that was super funny. Well, I mean, I think one could make a direct correlation between the increasing value of the company and the short interest. And those kinds of things happen in this world. Look, generally, we just keep our heads down and just do stuff. We're not fixated on every hot fire posting and all the rest of it. But when opportunities to have a little bit of fun come along, then— ### First Hot Fire **Madison:** Just to be clear, that first hot fire did or did not fail? **Peter Beck:** Of course it didn't fail. **Madison:** There was no catastrophic explosion or anything like that? **Peter Beck:** Not at all. **Madison:** So we can dispel that Reddit rumor right now? **Peter Beck:** I think we already have. I mean, if you watch the videos, you can see serial number one engine running. So I think that's pretty straightforward. ### Short Interest **Madison:** Short interest, when I checked, was 18% of the total float, 11% of the total shares outstanding if you'd prefer that figure. What do you make of that increasing short interest in your company? **Peter Beck:** Well, when we did the convert, there's always more shorts that come along with the convert. And it's not surprising at all—in fact, probably surprising that it's that low given the amount of failure in the space industry. I mean, you don't need to look far to see just a large number of space companies, especially launch companies, that really had no chance, promised the Earth, and then just absolutely ran into a wall. So I think there's a lot of suspicion within our industry, and we always—my CFO always reminds me that we have the best house on the worst street. And along with that comes these kinds of things. ### Milestones **Madison:** Does that figure then fuel you to want to prove them wrong? **Peter Beck:** No, I'm not—I don't wake up every morning and look at the short interest and think, "Oh my goodness." I wake up every morning thinking, "Right, we've got milestones to hit. How do we get here?" I think Neutron unlocks a number of things for the company. It breaks apart what is essentially a monopoly within medium launch. But the other thing it does for us is it gives us multi-ton capability to deploy our own assets in orbit. So that really opens up the third leg of the stool for Rocket Lab. So Neutron is important for two very different reasons. ### Doubters **Madison:** I don't want to talk more about the opportunity, especially revenue-wise that Neutron brings to Rocket Lab, but just still on this investor thesis and mindset at the moment. It feels to me and seems to me like there's a bit of a divide among investors—there's the doubters who you've just spoken about, and then there's the loyal defenders. When you first announced Neutron, you said, quote, "When we say we're going to do something at Rocket Lab, we do it time and time again." Why do you think now there seems to be increasing rumors and doubt that you and this company may not execute on what you say you're going to? **Peter Beck:** Wow, I mean, look, I think there will always be doubters, but I think the majority of people that we talk to and we interface with—and I think you can see that judged in the increase in performance of the company—is that we do do what we said we were going to do. We said we were going to build some spacecraft and deliver them on time. Guess what? We did it. And there's enough history there to go back. So look, if people want to underestimate us and whatever, that's their prerogative. But a reputation stands on its own feet. **Madison:** If we put a reality ruler over Neutron and what it means for this company in its future—two-thirds of this business today, perhaps not in the future, we will talk about how the revenue may change with Neutron—but today, two-thirds of this business, Space Systems, makes up the majority of your revenue. So how much weight and emphasis should investors actually place on Neutron for now? **Peter Beck:** Well, I mean, it look—yes, two-thirds of our revenue is from Space Systems, but that's because we have a launch vehicle that has an ASP of $8.5 million. And it's launching frequently, that's great, but it's only an $8.5 million drop. I mean, if you have Neutron at $55 million, then the balance sort of moves again. And we've always wanted to have a relatively heavy Space Systems element to the business anyway because launch is super lumpy, whereas Space Systems is very predictable and has a much greater smoothing effect. And you see that today where if a customer doesn't turn up to the pad and we have to revise the number of launches we're going to do in the quarter, it's irrelevant to earnings. And I think that's a good place to be. But I think Neutron going forward, as we've talked about, it unlocks a monopoly, and it unlocks the third stool to create some really significant value. ### ROI on Neutron **Madison:** Let's do the math in lifetime ROI on Neutron, then. $8.2 million to fly Electron, $55 million US to fly Neutron. You've told me previously that you target a 50% margin on both. So say you take about $27 million per Neutron launch. You've told me your dream cadence is about twice a month. You obviously won't get there at the beginning of Neutron, but that means you'll be earning— **Peter Beck:** That's not my dream cadence. That's just like a good cadence. **Madison:** Realistic cadence? I like realism. **Peter Beck:** Realistic for that period in time, but yes. **Madison:** So then if we take the realism and those figures with the 50% margin on Neutron, you'd be collecting and pocketing $50-55 million per month if you're doing two launches on Neutron. And then once you use that money to break even on the max $300 million spend, it's all upside from there? **Peter Beck:** Yeah, I mean, the return on investment of Neutron is very fast if you can do it for a few hundred million dollars. Now, if you've like others have spent billions, then that ROI is a bit longer. But yeah, and that's all good business, and that's all important. But I think don't forget there's a $320 billion opportunity sitting off to the right here that is enabled by Neutron. So yes, as a launch business itself, great—always going to be lumpy and always going to be difficult, but it really is the enabler to something much, much larger. ### End-to-End Space Company **Madison:** Interesting. So once that breaks even, then what are you thinking in terms of revenue addition for launch and then also for everything else that will go on it? **Peter Beck:** Well, I mean, look, the grand vision here is to build an end-to-end space company. So launching and breaking apart the monopoly is great, and the Space Systems business continues to grow. But I think, as we've always said, the real opportunity here is to utilize those things to build infrastructure in orbit, and that's where you crack open this $320 billion market in applications and services and everything from space. I think you only need to look as far as Starlink to see what kind of value creation can be made in disruption to an industry when you own the keys to space. **Madison:** You've spoken to me twice now—you've mentioned it again today, and we spoke about this last time as well—that Neutron breaks up that monopoly that a competitor has. I'm assuming you're talking about SpaceX. You've mentioned Starlink there. Are you not only going to go after SpaceX's launch business, but are you also going to go after Starlink directly? **Peter Beck:** We don't talk about what application we're going after because it's just too early. And it's kind of irrelevant. I'm a very kind of methodical person. I like to finish one thing before I start the next, and there's no point about really digging into applications until Neutron's flying. It's just irrelevant. But look, there's a whole spectrum of things you do in space, and the broadband space vertical is one shaft of light in a giant spectrum. So I think there's a lot of things, a lot of opportunities to go after there. ### Licenses **Madison:** When it is flying, just quickly on cadence, what licenses, if that's the correct term—it may not be in NASA terms—but what sort of approvals do you have to be able to fly in its first and second year? Do you need to renew any of those? **Peter Beck:** It's no different to an Electron. Every launch is licensed. Now, it is a slight peculiarity or slight difference from Electron as it's launched out of the US, so we don't need New Zealand government launch license approval. But every vehicle has its required licenses, and then, of course, you have all of the other regulatory things that go along with launch vehicles. ### Dividend **Madison:** So if we go back to those math equations, once it is revenue additional, when Neutron is flying, when could investors see a dividend? **Peter Beck:** Well, I mean, look, I don't think we've publicly spoken about that. Right now, as I keep saying, it's all hands to the pump to get Neutron to the pad. But the business changes pretty significantly once we start flying that vehicle. If you just minus out Neutron investment today, then the company looks very profitable. But we've taken and made a conscious decision to heavily invest in that product. **Madison:** And in the meantime, you're also going to Mars to retrieve some samples for scientific purposes, just casually on the side. Talk to me about that opportunity. **Peter Beck:** Let's be clear here. We are studying whether or not we can put together an architecture that NASA thinks is sufficiently viable to then go and do. So we're at the early stages of that program. Yes, we've been awarded a study contract from NASA to retrieve the samples that are sitting on the surface of Mars right now and bring them back home to Earth. And look, I think we're uniquely placed for that because if you asked around the industry who's the best in the world at building super small rockets for launching off planets, it's us. And then there's only two commercial companies that have reentered a capsule and landed it safely back on Earth, and one of them is us. So these are like two core elements—launching off another planet with a little rocket and bringing a little thing home and landing it safely, let alone some of the other technologies. And who's building Mars spacecraft right now? We actually built two of them. **Madison:** They're not yet to fly. We're going to have to wait a year for that. **Peter Beck:** Yeah, yeah. But the point being is we have really critical key elements that enable that mission. So we think we'll have a—we're going to have a good crack at seeing if we can put something together and make that happen. ### Is It Possible? **Madison:** After this conversation, I don't think you would go and have a crack at something if you didn't think you could execute on it. **Peter Beck:** Absolutely not, no. I think we'll put something together that will work. The question is a big political question about who ends up doing it. ### Disaggregation **Madison:** This kind of speaks to what you called disaggregation. We were talking before about government contracts now going to increasingly private operators, especially in space. It's a real trend, isn't it? **Peter Beck:** I think it's funny. When I first started the company, everybody was talking about the democratization of space, and then now we find ourselves like right in the middle of it, and it's super cool to be a part of that. I mean, governments no longer really, apart from SLS, really invest in launch vehicles. And the space station is retiring in 2030, and the replacement for that is commercial. Now we've got commercial science missions, and even the ESCAPADE mission—although it's a government mission, it was a commercial entity that built those two spacecraft. So the democratization of space is truly happening. **Madison:** Would Rocket Lab build or apply to build the next International Space Station? **Peter Beck:** Oh look, that's currently not on our roadmap. **Madison:** If it ever happens, please give me a call. **Peter Beck:** Yeah. **Madison:** Sir Peter Beck, thank you so much for your time. Appreciate that as always. **Peter Beck:** Cheers. **Madison:** Now, what are we going to see there? I'm just going to ask you a few more questions just about the Wallops facility. What are we going to see? How is it? **Peter Beck:** Well, I mean, there's a lot. There's—it's kind of like an iceberg. Whatever concrete you see sticking in the ground, there's like two-thirds of that below the ground. So you're going to see a lot of concrete, a lot of steel, and a lot of a busy site working together to get that pad operational. **Madison:** Stay tuned for part two. Thanks for watching Markets with Madison. 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