[[Home|🏠]] <span style="color: LightSlateGray">></span> [[Interviews]] <span style="color: LightSlateGray">></span> October 23 2023 **Insider**: [[Peter Beck]] **Source**: [Markets with Madison](https://www.youtube.com/watch?v=OCUlOiMKP6E) **Date**: October 23 2023  🔗 Backup Link: https://www.youtube.com/watch?v=OCUlOiMKP6E ## 🎙️ Transcript >[!hint] Transcript may contain errors or inaccuracies. **Madison:** Rocket Lab is chasing more mass to orbit with its biggest mission yet. Peter Beck tells me what opportunities and challenges are still to come in the space economy. **Peter Beck:** I think the biggest thing to happen in space has not yet happened. Whoever can put the services in space and maintain them and deliver service from space at the fastest rate at the lowest cost is going to win. You know, my two competitors are the two richest people on the planet. It's do or die - you have to build a profitable company to survive. **Madison:** It's Tuesday the 24th of October and you're watching Markets with Madison. New industries are emerging as space becomes more open for business. NASDAQ-listed Rocket Lab is undertaking its biggest mission yet, building a heavier rocket to put it on the path to competing with Elon Musk's SpaceX and Jeff Bezos's Blue Origin. They're all chasing mass to orbit in what's forecast to be a $2 trillion US space economy. In this episode, I'll give you an inside look into how Rocket Lab is upping its own stakes in the Space Race. ### Inside Rocket Lab **Madison:** Rocket Lab's Mission Operations and Control Center in Auckland is top secret. It's where its Electron rockets are made and some components of its soon-to-be bigger Neutron rocket are under development. For that reason, there's a lot we can't show you, but the Chief Executive Peter Beck gives a good sense of the speed of innovation in space. He has to be this fast when he's going up against Elon Musk. Rocket Lab has launched 39 times while Musk's SpaceX has launched its heavier Falcon rockets 273 times. Its most recent launch dropped 22 Starlink satellites into orbit. That number is expected to boom in the next few years with more providers getting into satellite broadband, including Amazon which just launched aboard a ULA rocket. It highlights an industry that's expanding beyond building and launching rockets, with new industries emerging. Who will dominate the space economy? In this interview with Beck, he reveals what role Rocket Lab is going to play and the challenges his company and the whole industry still need to overcome to get there. ### Peter Beck Interview **Madison:** Peter Beck, thank you so much for your time. It's amazing to be here. **Peter Beck:** Thanks for having us in. My pleasure. **Madison:** We're going to talk about the space economy more broadly, but I do just want to start on more recent news. You recently sold what, 3.6 million shares. Why are you selling? **Peter Beck:** Well, it was really for some estate planning purposes. You know, I've started a foundation called the Big Foundation. We're doing some cool stuff, and I've always had a real passion to support New Zealand entrepreneurs. I think I've maybe invested in 35 companies and counting now. So the Foundation is another way to support other more interesting things. **Madison:** Your heart and your head is still in Rocket Lab though? **Peter Beck:** Oh my God, yes! It represents like, I think, a fraction over 6% of my total holdings. So it's a small piece to take off the table. **Madison:** Good to hear. I didn't doubt it for a second. ### Mass to Orbit **Madison:** You're going for accessibility with Electron. You're now chasing what, more mass to orbit with your bigger rocket Neutron. Why is bigger better now? **Peter Beck:** So Electron fills a really important market niche, and that market niche is growing and the product's going really well. But there's also another market niche that we can go after. For the longest time I said I was never going to build a bigger rocket, never going to build a bigger rocket. In fact, you know, you can probably find an interview somewhere where I said I was going to tattoo it across my forehead I was that resolute. **Madison:** I imagine you've defected on that now. You're not... **Peter Beck:** No, well, I ate the hat to absolve myself from that sin. But nevertheless, it's become really obvious to us that there was a place for us to play. One of our competitors has become really dominant in that kind of medium-lift capacity, and a monopoly is never a great thing to have in any market. So we felt that we could actually go after that opportunity and we thought we could be really successful in it. We'd kind of built all the pieces. Electron is semi-reusable, so we learned a lot of lessons about reusability, and that sort of gave us a lot of confidence to go after a reusable large launch vehicle. **Madison:** Does that effectively mean that you feel like you've democratized access to space with smaller spacecraft now so that you feel like you can move on? **Peter Beck:** Unquestionably so. Before Electron came along, the cheapest flight you could buy was literally somewhere between 30 and $50 million US. If you wanted, if you had a small dedicated payload that you wanted to get to orbit, there was the Minotaur or the Pegasus launch vehicle, 30 to $45 million thereabouts, and we took that down to 7.5. So it enabled a whole new place within the market and enabled a whole bunch of really cool missions. So definitely that box is ticked. We'll continue to scale that product and it's all good, but it's time to move on to something that's bigger and a bigger opportunity. **Madison:** And why is now a time to chase mass to orbit? Because frequency and reliability still aren't completely perfect. And dare I bring it up, you lost a satellite recently. So why are you still going bigger when nothing's perfect yet? **Peter Beck:** Well, nothing is ever perfect in this game. It's an absolute assault on physics. You know, 2% of everything that weighs in the rocket is actually the satellite you put in orbit. So if you need a fraction of percent out on anything, you don't get to orbit. So it's always massively difficult. Electron reliability, to your point, we had a recent failure which is devastating, but its reliability is still extraordinary, especially among small launch vehicles. It is just demonstrably better than any other small launch vehicle. That being said, you can't let that stop you from developing new products and moving on. The larger launch vehicle is servicing a really important part of the market, and it opens the market up for us for doing much larger things as well. **Madison:** How big is that market? I've seen lots of numbers thrown around. Where do you price it at? **Peter Beck:** Well, the launch market is somewhere between a $10 and $20 billion TAM. So that in itself is, when you compare it to the whole space market, the whole space economy is worth about $360 billion US. But that's predicted to go to somewhere between 1 and 2 trillion by 2030, depending on which banker's report you want to read. So there's no argument that the space industry is in a massive growth phase. Neutron really puts us in an ability to take a big chunk of that market. But it's not really the $10 billion dollar launch TAM that we're going after with Neutron. Rocket Lab is not about a rocket, it's not about a satellite, it's about combining those two things together to go after a much bigger opportunity. That's the important thing here - the rocket is the enabler, it's not the end point. **Madison:** I do want to talk to you about being an end-to-end space company and your place in that sort of future, but while we're still talking about finances, I want to ask you about unit economics. ### Unit Economics **Madison:** Building a new, much bigger rocket is very expensive. Cost control and unit economics though really determines survivability in this game, as it does in many games. How do you think about the unit economics? You already mentioned reusability, but how important is reusability in that piece? **Peter Beck:** Reusability is a big important element. Even on Electron, 70% of the total cost of the rocket is in that first stage that we go and recover. Neutron is even better than that in some respects because it's designed from day one to be a reusable rocket, not kind of appended with stuff like we had to do with Electron. So the unit economics in that standpoint is really important. It's also important to understand that a small rocket is the hardest rocket to make work, both financially and from an engineering perspective, because there are just such low margins everywhere. The reason why it's difficult is that a launch range doesn't care, a safety team doesn't care if the rocket is 1 meter in diameter or 10 meters in diameter - same amount of people. So you have to amortize all of those functions across a $7.5 million sticker price. It's so much harder to make all that close and make margin, whereas if you go to Neutron with a $50 million plus sticker price, it's the same size team. The reason why I think we're going to be really competitive here is because we've had to come up with really clever ways to take a 50-person flight safety team into a five-person flight safety team. When you apply that to Neutron, it's a huge amount of saving. **Madison:** What's the margin difference on an Electron rocket versus what will be on a Neutron? **Peter Beck:** We're aiming for 50% gross margin on both products. **Madison:** But obviously higher price and the margin is bigger percentage on a more expensive rocket? **Peter Beck:** Yeah. **Madison:** How low can that cost go? Because if you look at everything that combines that cost, it's fuel, materials, as you mentioned the team, and maybe a bit of maintenance on the ground and on the rocket as it comes back down. But at what point does a spacecraft become like an aircraft and it comes back down, you turn it around at a cheap cost and get it back up? **Peter Beck:** Well, I mean, that's utopia, right? That's what everybody wishes for. **Madison:** That's what you're aiming for, isn't it? **Peter Beck:** It is what everybody aims for. Unfortunately, the reality of physics is a real pain in the butt. As I mentioned before, 2% of the total rocket's mass is the payload, and it's even worse than that when you make a vehicle reusable because you're carrying all that extra parasitic mass. As much as everybody wants aircraft-like operations, there needs to be some pretty amazing breakthroughs in propulsion or materials or something major to really make that a reality. We're all kind of having a crack at it, and it's all suboptimum. But to truly make aircraft-like operation, there has to be some breakthrough somewhere because the physics is just fighting you the whole way. Like if the Earth's mass was just a little bit heavier, we wouldn't get anything to space. We just wouldn't. It would just be physically impossible. **Madison:** Do you think it is possible to make spacecraft like aircraft eventually? **Peter Beck:** Eventually I think it is, but like I said, there's going to have to be some pretty substantial breakthroughs. ### Space Tourism **Madison:** Speaking of spacecraft and becoming like aircraft, Elon Musk wants to go to Mars, Jeff Bezos has already gone to space. Why are you not getting into space tourism? **Peter Beck:** I'm just not convinced of the market. I think you can look at Virgin Galactic, and they're now operational, and it's not a great business. I think there's plenty of people that would love to take the ticket, but I still think that market is very unproven and not that large. I don't think this is forever. We're often asked about human spaceflight and when Rocket Lab is going to put a capsule on the top of Neutron. The answer to that question is exactly the same answer to this question - it's when there is a market, when there is a destination. At the moment there's one customer for orbital space travel, and that's NASA. Until there's many more customers, it's a really difficult business to square in my eyes. **Madison:** Fair to say rolling out space tourism for now, Rocket Lab's not going to get into? **Peter Beck:** I've had to eat a hat because I ruled stuff out, so I'm not going to rule anything out. Never say never. But it's certainly not a market we're pursuing at the moment. I think space tourism to orbit where there is a destination - if someone goes and puts a giant hotel up there and there's actually a real destination other than what NASA needs - then sure. But I think the market needs to develop a bit. ### New Space Industries **Madison:** If we look at what's happening in the market now, you know this, but just to bring it up, we're mostly sending satellites for communications, a bit of defense up to orbit. I'd love your thoughts on other industries that are emerging out of this space economy as I call it. You've recently worked with V to help manufacture pharmaceuticals in space, which is incredibly interesting. What other opportunities like that do you see as space becomes more open for business? **Peter Beck:** I think that's a great question. I'll preface that with I think the biggest thing to happen in space has not yet happened. I think we're at that time when, if you think about the marine industry, there's a few ships going out and exploring, and there's not like a full-on mine - there's just a few tentacles in the water, if you will. So I think the biggest thing to happen in space has yet to happen. But clearly Communications is one thing that the high ground of space gives you, and Earth observation is another. But I think there's a tremendous amount of really interesting business plans out there, that's for sure. And you mentioned V - pharmaceuticals is interesting. I think down-mass is interesting. Everyone's focused on getting stuff up, but I think getting stuff down is equally an interesting market. **Madison:** Is there anything out there that you think doesn't have legs, other than space tourism, that you think that's probably not going to work? **Peter Beck:** I struggle with some of the asteroid mining stuff. In-situ space resource utilization makes sense if I need to land on a rock to fill up to get to Mars - that makes sense. But bringing home platinum from a meteorite back to Earth, I'm just... I mean, if it was easier to get to orbit then that would be great, but it's just so incredibly difficult that I kind of struggle with some of those business plans. **Madison:** You mentioned down-mass. What role is Rocket Lab playing in that? Are you active in it? **Peter Beck:** V is a great example. We're responsible for the spacecraft and hosting their capsule, and we're responsible to deorbit that capsule. That is very difficult trajectory stuff. So we definitely have a hand in that. **Madison:** Do you see that as a growing part of the business going forward? **Peter Beck:** To be determined. Certainly one of the reasons why we took that project on is every project that we take on with our customers is always very strategic. It's not always just about generating revenue. One day we're going to put a capsule on top of Neutron, so we have to be able to get that back. So I'd much rather do all the effort and spend all the time on getting back a little capsule than the first time we ever reenter something from space it have humans on board. **Madison:** Are you going to be on board? **Peter Beck:** Nope. **Madison:** Me neither, if I say so myself. **Peter Beck:** No, I have all of the knowledge but none of the courage. **Madison:** And I do want to talk about "one day." I think this is what investors would love to hear from you. What does Rocket Lab's role in that "one day" space economy look like? You call yourself an end-to-end space company now. There's all of these things being thrown out there - down-mass, space tourism, pharmaceuticals. How will Rocket Lab look in that bigger space economy in the future? **Peter Beck:** This is actually really important because I think if you look at the large space companies of the future, it's not going to be a launch company, it's not going to be a satellite company or down-mass company. What it's going to be is a company that is end-to-end. Because everything in space is a giant compromise. If you look at a rocket as an engineer, it drives you literally insane because as an engineer, you want everything perfect, but everything is a compromise against everything else. Then you put a spacecraft on the top, and everything in that spacecraft is a compromise against everything else. And then you put them all together and you've got one giant compromise. If you can end-to-end all of that and actually just deliver solutions in orbit, you can eliminate so much of the compromise, so much of the bit in the middle. It starts to get blurry between what is a rocket and what is a spacecraft, and that's when it gets really interesting. At the moment, the industry is very segmented. It's like "I'm a rocket guy, here's my rocket, you make your spacecraft to fit in my rocket." And then the spacecraft guys are like "Here's my spacecraft, you make your rocket have the environments to suit my spacecraft." It's very segregated. When you start blurring that together, the power of that is enormous. I think a good way to not call out or promote any of our competitors, but if you look at what Elon's done with Starlink, it's case in point. If you own the spacecraft, you can launch the spacecraft, you can deploy infrastructure at a rate and a frequency and a cost that nobody else can even come close to matching. Rocket Lab's goal here is not to be a rocket company, not to be a satellite company, but to ultimately deploy infrastructure in space. Because as we talked about before, the total addressable market in space is $320 billion to a trillion. Of that $320 billion, like $300 billion of it is actually services from space. So whoever can put the services in space and maintain them and deliver service from space at the fastest rate at the lowest cost is going to win. And you need your own rocket to do that, and you need your ability to build your own spacecraft to do that. So that's the master plan. **Madison:** I love it. At the moment, Rocket Lab is what, one-third rocket launching and building and two-thirds space systems. How will that ratio change in the future, do you think? **Peter Beck:** I think it'll be about that. We sat down when we started to get into space systems and as part of the strategy said, "Look, we'd really love to get one day to a point of two-thirds, one-third, and that might sort of take us 5 years." Well, we did it within the first year and a half. So we really like that ratio. Launch is super lumpy. Spacecraft are built over sometimes years, so it smooths the whole business model out. ### Challenges **Madison:** You've already raised some challenges and the challenges of physics. We're casually sitting here about launching things into space, which is not really a casual conversation by any measure. In Elon Musk's own words, this is "hard." Virgin Orbit has failed. You got some of their assets for cheap, so good on you for getting in on that. What about this industry right now is most challenging? And when you look out to that future that you've just spoken about, what are the challenges that the industry has yet to accept or yet to override, do you think? **Peter Beck:** That's a great question. I think there's a number of challenges. Space is incredibly capital intensive. A lot of people ask us, like SpaceX and you guys have delivered a launch vehicle on cadence with reliability - there's really only those two companies that have done it. What is the difference between those two companies and, as you point out, the list of failures and attempts prior? The space industry - the best way I can describe it is like running through a maze at night, and at every dead end there's literally a cliff to fall off. If you just run flat out and you fall off that cliff, then you're dead. So you've got to run super quickly through the maze, but you can't screw it up. You've got to run quickly but also stop before you fall off the cliff, realize that you're about to fall off the cliff, turn around, and go. It's just very unforgiving in the fact that if you run down the wrong technology path, you go off a cliff because the amount of capital you've sunk and time you've sunk, it's almost irreversible to get back out. So it's kind of like "make haste very diligently and very slowly," if you will. If I look across how we develop things and how competitors have developed things, there is a difference. Making those judgment calls at the right time is super important. So that being said - not really answering your question - but that being said, it's tremendously capital intensive. So there's just no room for error in the business, there's no room for error in orbit either. You have to be very diligent and because it is such a capital intensive business, being ruthlessly capital efficient is also super important. **Madison:** You talk about trying to be diligent while making haste, but the speed of innovation in this space race is immense. What does that require from you as a leader? **Peter Beck:** That's a difficult question. Look, I think I'm still the chief engineer of the company, and I really love that role. If you put 10 engineers in a room, you'll have probably six different ways about doing it, and sometimes somebody has to be the mediator. That's kind of, if I have one gift of anything, that's probably it. So I try and spend as much time in that part of the business as I do actually company building and in the rest of the business. So, I'm not sure that really answers the question, but sort of does. **Madison:** Ashlee Vance from Bloomberg wrote a book about you recently. You said that at the end of it, he still couldn't figure out who you are and what you're like. **Peter Beck:** Yeah, I take that as actually a win. That was good. That was the intention. ### Beck on Impact **Madison:** So I'm going to try and figure out who you are here today. I'm just going to ask you to make it a little bit easier on everyone. What do you want investors to know about who you are and what you're doing, what your ambition is here? **Peter Beck:** Look, naturally I'm very passionate about space. The reason I'm passionate about space is not necessarily because it's cool. I mean, it is cool and it's deeply challenging from an engineering perspective. I really enjoy really difficult problems - the harder the problem, the faster I'll run towards it. But as you entered the building here, you would have read a quote up on the wall, and whatever factory you go into at Rocket Lab, you'll read the same quote, and that is: "We go to space to improve life on Earth." I think the thing that makes me most excited about what we're building here is that there's very few industries that you can put a relatively small thing in place to create such a massive impact. We launch a few weather satellites and they literally impact millions of people's lives. Building stuff in space is just no different to building infrastructure. You build a bridge and a road on State Highway 1, and it affects the people that use the bridge and the road on State Highway 1. We can put something in orbit and it affects literally every person in the entire planet and in every country if they use that service. So you can have massive amounts of impact. What really drives me is, I was taught as I was growing up, it's like "do something useful and have the biggest impact you can with your life." And space is cool and all the rest of it, but at the end of the day, I don't know of anything else where you can have as much impact as you can in space. And with impact creates value. What we're trying to build here as a company - there are a lot of space companies that are just wound up about being cool in space and all the rest of it. What I'm trying to build here is a multi-generational space company that goes on to deliver impact. Frankly, that's one of the reasons why I took it public. Because if you look at a lot of space companies - my two competitors are the two richest people on the planet - and you have to ask yourself, when they go, what are their companies going to continue? Are they going to continue to grow and thrive? Maybe they will, maybe they won't. But going public almost enforces that it's do or die. You have to build a profitable company to survive. And if you build a profitable company, it will survive and it can go on to be multi-generational. To me, the biggest failure would be if I built Rocket Lab and then retired or died and then it stopped. That would be failure for everybody. So one of the whole reasons to go public was to enforce that discipline, to enforce that company building, to make sure that we have something that is enduring. **Madison:** Can Rocket Lab survive without you? **Peter Beck:** Yes, totally. I would have failed if that was not the case. Right now it requires plenty of nurturing. But we have a really laser-clear trajectory of where we need to go, and we've just got to crash through a few things and pull a few things off and it'll be just great. **Madison:** Is the opportunity for impact infinite? We call it a space race, but is there space for all of you - for Rocket Lab, SpaceX, Blue Origin, ULA? Is there space for all of you in the race? **Peter Beck:** I think so. I think the market is big enough. The opportunity is big enough, and we're all chasing different things. Elon's going to Mars - great. **Madison:** You're not going to Mars? **Peter Beck:** No. Ironically, we have two spacecraft going to Mars, but certainly I have no intention to leave a footprint on Mars. And Jeff is about building huge amounts of infrastructure off Earth, so building Earth off Earth. I guess we're a little bit more strategic about that, and we have to build a business, a profitable business first. We think there's plenty of opportunities along the way to do really cool stuff, but also build that foundation for an enduring business. **Madison:** Thank you so much for your time, Peter. It's been amazing to chat. ### Outro **Madison:** Not possibly the coolest place I've ever filmed an interview. Now, I said this on Twitter and I'll say it here again - Elon Musk, you deserve a right of reply. I'd love to interview you next. Now go put your money to work. Thanks for watching Markets with Madison, the New Zealand Herald show for interested investors. 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