Morgan Stanley sees SpaceX value growing to more than $50 billion

Elon Musk, CEO for SpaceX, speaks during the International Astronautical Congress in Guadalajara, Mexico, on Sept. 27, 2016.

Susana Gonzalez | Bloomberg | Getty Images

Elon Musk, CEO for SpaceX, speaks during the International Astronautical Congress in Guadalajara, Mexico, on Sept. 27, 2016.

Elon Musk is making rocket launches mundane and that could be worth tens of billions of dollars.

SpaceX could become a $50 billion juggernaut through its launch of a satellite broadband network, a team of Morgan Stanley analysts wrote in a report Thursday.

The private space company on Wednesday launched its 15th rocket this year, and the second this week. More importantly, the Falcon 9 rocket launch was the third time SpaceX reused the first stage booster, and with each of these so-called “flight-proven” launches, it should be easier to attract new customers.

Morgan Stanley says SpaceX developing reusable rockets is “an elevator to low Earth orbit.”

“When Elisha Otis demonstrated the safety elevator in 1854, the public may have struggled to comprehend the impact on architecture and city design. Roughly 20 years later, every multistory building in New York, Boston, and Chicago was constructed around a central elevator shaft,” Morgan Stanley said. “It all comes down to SpaceX.”

Reducing the cost to launch a satellite to about $60 million, from the $200 million that United Launch Alliance charged through most of the last decade, was a monumental breakthrough. SpaceX is trying to reduce its cost to $5 million per mission, and Morgan Stanley says the launch business “generates limited operating income.”

The cash cow, to Morgan Stanley, is the SpaceX plan to launch a satellite broadband network in two years and send humans to Mars in seven.

“The goal of the satellite internet business is to generate enough cash to be able to go to Mars” the research firm said, adding that it believes Musk is serious about his goal of planetary expansion.

SpaceX has denied that it is preparing an initial public offering, but Morgan Stanley says the prospect should not be counted out. Upcoming projects will require significant amounts of money. “It seems reasonable to us to consider whether the company could look to access capital in the public markets,” the analysts said.

With “substantial room to increase the investment in space,” Morgan Stanley says that “public investors will start to pay more attention to space when or if SpaceX decides to IPO.”

Wall Street Morgan Stanley investment SpaceX

  • Space: the final investment opportunity. It sounds like science fiction, but Morgan Stanley is taking it seriously.
  • Elon Musk’s SpaceX is the key company, just as Tesla has been for electric and self-driving cars.
  • But investors should be wary of that story.

It was only a matter of time before Wall Start started to take serious note of the Final Frontier.

In a sprawling research report published Thursday by a team of Morgan Stanley analysts, the investment opportunities of space were considered in deep detail.

Driving much of this are of course Elon Musk and SpaceX, the private rocket company Musk serves as CEO of that is expected to go public in the next few years. Until it does, it is building investment confidence by firing off and recovering reusable rockets and charting a course to colonize Mars.

To that end, Adam Jonas, a Morgan Stanley auto analyst who is also bullish on another Musk company, Tesla, and its ability to create a $60 billion market cap and 1,200% return since its 2010 initial public offering, offers some sweeping thoughts on how space could become a trillion-dollar-plus opportunity.

Critical to his argument is the rapid development of enthusiasm about self-driving cars.

“The Autos & Shared Mobility team’s work on autonomous vehicles teaches us how quickly a topic can move from complete obscurity and skepticism to a dominant investor theme, influencing the allocation of many hundreds of billions in capital,” he wrote.

“With autonomous vehicles, it was a combination of technical milestones, capital markets events, and investment allocation that accelerated the topic. With space, we face a similar event path … with SpaceX sitting at the starting point.”

Don’t buy the hype

Elon Musk SpaceX Space XSpaceX CEO Elon Musk.REUTERS/Mario Anzuoni

The problem here is that space is actually nothing new. Launching satellites into orbit and even visiting distant worlds is still based on 1960s-era science. The computing power has greatly increased, but the physics is the same. And SpaceX’s current business is concentrated, in a practical sense, on lowering the cost of launching satellites.

Autonomous vehicles are new, but the “investor theme” Jonas highlights is largely a function of the former investment theme — electric cars — failing to gain the traction that was predicted in 2010, when some analysts maintained that 15% to 20% of the global auto fleet would be electric by 2020. It’s almost 2018, and the global market for EVs is only about 1%.

About a year ago, the investment narrative shifted, and autonomous mobility became all the rage.

The only way to directly invest in electric cars and self-driving vehicles is to buy Tesla stock, which explains why the company’s shares have boomed in 2017, up 65%. (One can invest in the technological supply chain for EVs and autonomy, of course, but those companies are largely hidden from consumer view, just as parts suppliers are in the auto industry.) SpaceX will be a similar story and could yield similar returns.

It’s the story that will hook investors, just as electric cars and self-driving vehicles have already. But what about making money? Morgan Stanley’s two-pronged thesis stipulates that future bandwidth demands will require more satellites and that space is on the verge of being more aggressively militarized.

Space doesn’t need to be disrupted

Weyland-YutaniScreenshot via YouTube/Alien Theory

A disruptive narrative about launching satellites into various orbits, in this context, is unnecessary. And from SpaceX’s perspective, it might be viewed as something of a swindle: The satellite business exists to fund the interplanetary missions, but it’s unclear whether the government is prepared to allow private companies to assume NASA’s role. In fact, SpaceX is probably counting on NASA to accept some type of cooperative model, as it has with space-station servicing contracts, to avoid that fight.

The weaponization-of-space story, which Morgan Stanley spends a substantial amount of time on in the report, is simply troubling from a moral perspective. It suggests a kind of Weyland-Yutani Corporation taken from the movies in a scenario that has usually been discussed in “Don’t do it!” terms. The ethical exploration of space has actually been legally and diplomatically considered since the 1960s.

Self-driving cars are a long way from being fully autonomous and making anybody any money, just as electric cars are very unlikely to take over the world. Investors should remember that whenever they’re told otherwise. They should also be skeptical that what is in fact a sluggish and halting story when applied to transportation will be any different when taken to the Final Frontier.

Get the latest Tesla stock price here.

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Updated: Oct 12, 2017, 01.04 AM IST

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