[[Home|🏠]] <span style="color: LightSlateGray">></span> [[Interviews]] <span style="color: LightSlateGray">></span> May 18 2023 **Insider**: [[Peter Beck]] **Source**: [Markets with Madison](https://www.youtube.com/watch?v=yPfK1sjo2KE) **Date**: May 18 2023  🔗 Backup Link: https://www.youtube.com/watch?v=yPfK1sjo2KE ## 🎙️ Transcript >[!hint] Transcript may contain errors or inaccuracies. **Madison:** The Kiwi founder of Rocket Lab, Peter Beck, on going up against Elon Musk, including what he makes of the SpaceX rocket blowing up: **Peter Beck:** Well, I think Elon's approach is to go fast and early. **Madison:** But Musk's shareholders, they still love him. It's Friday the 19th of May, and you're watching Markets with Madison. Peter Beck is preparing to go head-to-head with Elon Musk. His company Rocket Lab is building a bigger rocket named Neutron, which will directly compete with the SpaceX Falcon 9 rocket. Neutron's on track to launch at the end of calendar year 24. It's so big it can only launch from its site in Virginia, not from its original launch pad in the Mahia Peninsula. Beck has been in New Zealand, and Peter is here to tell us how much it's costing to build it and when investors can expect to see a return on that investment. Hey Peter, good to see you. **Peter Beck:** Likewise, thanks for having me. ### Business of Space **Madison:** How's the business of space going? **Peter Beck:** The space business is very good. It continues to grow and perform very well, so we're happy. **Madison:** You're seeing more customers come to Rocket Lab to launch satellites into orbit. What factors do you think are driving them to your company specifically? **Peter Beck:** Well, now we've established ourselves as the most reliable small launch vehicle. We're the second most frequently launched rocket just behind SpaceX, and a number of our competitors have promised a lot but unfortunately have failed to deliver. So we see quite a lot of defection from other promised platforms onto the very reliable Electron. ### Market Growth **Madison:** It's not necessarily more people wanting to launch more things into space, just a more concentrated market coming to you? **Peter Beck:** No, I mean there's always growth in the market, that's for sure. But the space industry is one where you procure a launch in some cases years away. So when you look at launch vehicles that are in development, some of those can be accurate years out but never come to fruition. So like I say, there's continued market growth, but we're seeing a lot of defection in the last sort of six months. ### Customers **Madison:** Who are your customers mostly, and what's the split between government and commercial? **Peter Beck:** About 50-50. So 50% government and 50% commercial. We're flying everything from a CubeSat for a high school through to the most important national security payloads for government customers. So really across the whole spectrum—even missions to the moon. Last year we delivered a mission to the moon for NASA. ### Purpose **Madison:** These customers that you have, what's their purpose for utilizing space? **Peter Beck:** A very wide variety. So you have Earth observation companies that are using the data for deforestation and things like that. You have communication companies. You have governments that are looking for national security missions and payloads. So really a pretty wide spectrum, but mostly I would say communications and Earth observation. ### Pricing **Madison:** So Peter, if I wanted to give you my satellite—hypothetically, say I have one to launch into orbit—how much would that cost me, and do you charge me per satellite or per rocket use? **Peter Beck:** A bit of both. Sometimes we will aggregate a few satellites onto a rocket, but generally it's one satellite per rocket—that's how most of our customers come to us. The starting price is $7.5 million US dollars. While that might sound expensive in the context of things, to provide some context, before Electron that same launch would have cost you at minimum $35 to $50 million dollars. So customers get a really good deal when they fly with us. ### Competitors **Madison:** Because of Rocket Lab and your pricing then, have you seen pricing for other competitors come down as a result? **Peter Beck:** Well, most of our competitors either have failed to make it to orbit or failed as commercial enterprises. We haven't really seen any price pressure either way. It remains an extremely great proposition when you consider the alternative. So we haven't seen any price pressure really at all. ### Price Increases **Madison:** So because they're coming to you then, and you're one of the few, if not the only successful one at the moment, are you able to push through price increases? Is that happening? **Peter Beck:** We feel like we charge a fair rate. Like I say, if you wanted your own dedicated rocket, you're gonna have to spend somewhere between $35 and $50 million dollars, so $7.5 is a good price. There's some elasticity in that price, but we're certainly not dropping our prices, nor are we feeling like we need to increase them significantly either. ### SpaceX **Madison:** Your major competitor is probably SpaceX, fair to say? **Peter Beck:** Pretty much, yep. **Madison:** What's it like going up against Elon Musk? **Peter Beck:** Oh, Elon's just a guy. I mean, we're in a slightly different market really to SpaceX. They have a very large launch vehicle to deliver lots of satellites. We deliver one in a very bespoke kind of way. The new launch vehicle that we're developing called Neutron is a direct competitor to a Falcon 9, their large rocket. So that's certainly a little bit more heads-to-head approach than our current product. **Madison:** Do you and Elon chat? Do you text each other or have like a WhatsApp group? **Peter Beck:** It's a relatively small industry, and we all know each other. Because it's so insanely hard to go to orbit and there's only just a few of us that have got there, there's kind of a mutual respect. But at the end of the day, we are all competitors as well. So we all kind of chat and respect each other, for sure. ### Starship **Madison:** I definitely do want to ask you for more detail on how Neutron is progressing, but just quickly on SpaceX, what did you think of the Starship rocket blowing up? **Peter Beck:** Well, I think Elon's approach is to go fast and early. I think everybody was not expecting it to make all the way to orbit. So I think they've got some good data out at the beginning. The only thing that I found terribly surprising was their flight termination system took 40 seconds to activate, which is very concerning. Generally, when you terminate a rocket, it should be instantaneous, not some nearly a minute later. So I think that they're going to have some work to solve that problem, but generally the outcome was kind of as everybody expected. **Madison:** Do you have any concerns about that sort of "go hard and go fast" approach generally, and what that might mean for the industry, given that safety problems should be paramount? **Peter Beck:** Our approach is slightly different. By the time we put a rocket on the launch pad, we expect it to work. We're happy to fail fast early in the development program with subsystems and components, but by the time we put a rocket on the pad, we really expect it to work. So it's just a slightly different approach. But this is why you have things like flight termination systems, so that if it doesn't work, everybody's safe. But those things have to work instantaneously, not delayed. ### Neutron **Madison:** Okay, so Neutron—how's it going? **Peter Beck:** Good. It's great to see some full-scale engine components coming off all the printers and machines, and the tanks coming together—they're very large composite structures. We'll have some frosty tanks here soon with some cryogenics in them, and it'll be good to see. **Madison:** Now I know that you've said that this rocket is to only exclusively launch from your new site in Virginia and the United States, but would you ever look to launch a Neutron rocket in the future from the Mahia Peninsula in Gisborne? **Peter Beck:** Well, I think it's important to understand the scale of the machine. If you took all of the liquid oxygen in New Zealand in total, we would have filled the tank of the rocket once. Wow. It's just not the industrial base to be able to actually provide something that large. **Madison:** Peter, can you give us a Neutron launch date? **Peter Beck:** We're still planning on the end of '24 to get D1 on the pad. Nothing's changed from that. It's an aggressive timeline, but we continue to work hard and hit down milestones, so we're still planning there. ### Financials **Madison:** Now, talking about your finances just quickly, you released your first quarter results just recently. Your quarterly net loss almost doubles to $45 million US dollars. That was largely due to a higher R&D spend of about $23 million in just that three-month period. What do you expect the total cost of building and developing the Neutron rocket to be by the time it gets to that launch pad? **Peter Beck:** We've been very consistent there. We think it's about a $200 to $250 million dollar project. So the expenses appeared in the quarter were completely expected as we continue to invest heavily in that product. But also, we exceeded our guidance on revenue and also on margins. So although we're spending more to develop the product, as an overall business, we're trending in a good direction. ### Payoff of Neutron **Madison:** Can you just explain what the payoff of building Neutron is in the long run? Is it the fact that you can put more satellites into it or charge more for its use? **Peter Beck:** Electron will lift sort of up to 300 kgs into low Earth orbit. Neutron will lift 13,000 kgs into low Earth orbit. And as you would expect, the price difference is pretty significant. Neutron being $50-55 million dollars a flight. So it's a good revenue generator in that sense. But between Electron and Neutron, it will mean that we can lift around about 90% of all of the customers' payloads in the world today. So those two products basically address almost the total addressable market of launch. ### Investors Patience **Madison:** How patient will your investors need to be to see a return on all of that R&D spend invested into developing Neutron? **Peter Beck:** Well, hopefully they won't have to be too patient at all. That's the name of the game. I think we spend a lot of time talking about rockets, but two-thirds of our revenue actually comes from our Space Systems Division, and that just continues to go from strength to strength. The company is profitable if we weren't investing so much in Neutron, but we really think that Neutron is going to open up new markets and bring great returns in the future. So we continue to be comfortable investing in it. ### Venus Mission **Madison:** Just quickly, since you mentioned your spacecraft, when are you going to Venus with NASA? Is that still on the cards? **Peter Beck:** So the Venus mission is a Rocket Lab "nights and weekends" kind of deal. It's a philanthropic mission where we have a lot of people donating resources and time, including Rocket Lab. So the real work has to come first. Venus will occur when it occurs, but the priority of course is the work that actually pays. ### Passion Project **Madison:** A passion project then, by the sounds of it? **Peter Beck:** Definitely a passion project for the whole company. **Madison:** If it's for the whole company, then who's paying for it? **Peter Beck:** Well, we're using old hardware. So when we develop the Capstone mission for the moon, when you develop something like that, you generally have qualification articles and flight articles. Basically, we built pretty much three spacecraft when we went to the moon, and it's exactly the same spacecraft that took us to the moon that will take us to Venus. So we've got a whole bunch of parts lying around that we need to re-qualify and get ready for flight. It's not a huge cost to the business other than people's time at nights and on the weekends. **Madison:** Hey, thanks so much for your time. Really appreciate it, Peter. **Peter Beck:** Thanks, Madison. ### Post-Interview Commentary **Madison:** Peter Beck might think Elon's just a guy, but Musk's shareholders still love him. Here's the reception that he got at Tesla's annual shareholder conference this week: [Applause] **Elon Musk:** "I just want to say I love you guys." **Madison:** He spoke about Tesla's Master Plan Part Three, which is to create a global sustainable energy economy. **Elon Musk:** "Even when factoring in the cost or the emissions required to produce an electric vehicle, which for now are a little higher than gasoline vehicles, when you look at the emissions over time, electric vehicles absolutely win by a long shot." ### AI Safety **Madison:** And it was a big week for tech on Capitol Hill. OpenAI's Sam Altman testified at a subcommittee hearing on the power, benefits, and dangers of artificial intelligence like ChatGPT. **Sam Altman:** "We believe that the benefits of the tools we have deployed so far vastly outweigh the risks, but ensuring their safety is vital to our work, and we make significant efforts to ensure that safety is built into our systems at all levels. Before releasing any new system, OpenAI conducts extensive testing, engages external experts for detailed reviews and independent audits, improves the model's behavior, and implements robust safety and monitoring systems. Before we release GPT-4, our latest model, we spent over six months conducting extensive evaluations, external red teaming, and dangerous capability testing. We are proud of the progress that we made. GPT-4 is more likely to respond helpfully and truthfully and refuse harmful requests than any other widely deployed model of similar capability. However, we think that regulatory intervention by governments will be critical to mitigate the risks of increasingly powerful models. For example, the U.S. government might consider a combination of licensing and testing requirements for development and release of AI models above a threshold of capabilities." ### Financial Results **Madison:** Closer to home, we've had a stack of financial results this week. Now, a lot of the percentage changes here weren't possible because the drops were from positive to negative in many cases, but we did see this week big drops and bottom lines for property. That's due to valuation losses. Goodman with a 118% fall to a loss of $135 million, and Argosy reported an $80 million net loss. It previously made a full-year profit of $236 million dollars. Serko, the travel booking software company, made an improved net loss with a boost in Booking.com bookings. And Xero, which is listed in just Aussie now but did start here, it made a much bigger annual net loss of $113 million. That's from a $9 million loss the year before. It was due to one-off costs including writing down another business and axing 15% of its staff in a restructure. Its revenue did jump by 28%. Ryman Healthcare reports today, as does My Food Bag. We'll have My Food Bag's Chief Executive Mark Winter on Monday's show, so if you have any questions you want me to ask them, just send them in now. Go put your money to work. Thanks for watching Markets with Madison, the New Zealand Herald show for interested investors. If you want to stay up to date with financial markets, click the Subscribe button below, and you can watch our other episodes here. Stay up to date with all the business news and numbers as they land on NZHerald.co.nz.