This piece explains how SpaceX is slashing rocket launch costs from $1 million per kilogram to $10, aiming to create a whole new space economy. Analyst Luke Ward is bullish, seeing SpaceX not just as a rocket maker but as building a 'space Amazon'—lower costs unlock more business. Key holdings: SpaceX itself (Starship targets launch costs as low as mailing a package), Starlink (6,000 satellites in orbit, soon connecting phones directly), and John Deere (partnering with Starlink to enable self-driving tractors).
At a Glance This edition of Business Breakdowns offers an in-depth analysis of SpaceX's business model. The core thesis is that SpaceX achieves disruption by bending the launch cost curve—with a key focus on the separation of manufacturing and reusability. Baillie Gifford has been invested in SpaceX
Luke Ward (Baillie Gifford analyst, invested in SpaceX since 2018) breaks down SpaceX's business model. Core thesis: SpaceX represents both technological innovation and commercial innovation — its true moat lies in separating manufacturing from reusability, reducing launch costs from millions of dollars per kilogram to the order of $10 per kilogram, thereby creating a space economy market that did not previously exist.
Luke Ward argues that the core of SpaceX’s disruption is not the technology itself, but the order-of-magnitude shift in the cost curve. Historically, launch costs never truly declined—the Space Shuttle was even more expensive per kilogram than the Saturn V. The reason: customers (military/telecom companies) had satellites worth $1 billion and were unwilling to risk a "cheap but unproven" new rocket. This perverse incentive froze the industry for decades.
SpaceX’s breakthrough came from two dimensions:
1. Manufacturing innovation: Through vertical integration and first-principles design, rocket manufacturing costs were drastically reduced. The Falcon 9’s manufacturing cost is only one-tenth that of traditional rockets.
2. Reusability: Transforming a single-use asset into a depreciable one. The Falcon 9 has flown approximately 400 times, with 320 of those being reuse flights—meaning the cost per booster is spread across five missions (instead of one). Some boosters have already been reused over 20 times and are still operational.
Key data chain:
Luke Ward emphasizes that Starship is designed for full and rapid reusability—not just partial reuse, but capable of multiple flights per day. Its payload capacity is initially around 100 tons per mission, potentially rising to 200 tons per mission in the future. Musk’s stated variable cost target is approximately $10 million per launch (at steady-state scale), with an ambitious goal of reducing it to $2 million.
> "If these performance levels are achievable, costs will drop to around $10/kg—more than 100 times cheaper than the current Falcon 9. This will fundamentally change the scope of what is economically viable in the space economy." —Luke Ward
Starlink is not only SpaceX’s largest revenue source but also the key to the economic viability of the entire Starship program. Currently, about two-thirds of SpaceX’s launch capacity is used to deploy Starlink satellites, and this share is still rising.
Advantages of Starlink’s business model:
Scale data:
Luke Ward points out that Starlink’s revenue will significantly exceed Falcon 9’s launch revenue, and this is precisely the funding source for sustaining Starship’s continuous innovation—forming a positive feedback loop of "cheaper launches → more satellites → more revenue → cheaper launches."
Future expansion: Direct-to-cell connectivity — No hardware modifications are needed; any smartphone (Samsung, Apple, etc.) can connect via the Starlink network. It is expected that within 1–2 years, there will be no cellular dead zones globally. The impact on IoT devices (estimated ~30 billion units by 2030) and remote industries (agriculture, mining, drilling) will be transformative.
> "John Deere has already partnered with SpaceX, and Starlink will directly connect all its vehicles—you can achieve autonomous tractors and 24/7 crop monitoring sensors. These traditionally low-margin industries will see significant efficiency gains." — Luke Ward
Luke Ward argues that the biggest misconception about Starship is viewing it as a "Mars spaceship"—in reality, it is first and foremost an Earth-orbit economic machine. Gravity diminishes with the square of distance, so the greatest cost barrier is leaving the surface and reaching orbit—once in orbit, traveling anywhere in the solar system becomes relatively easy.
Starship's capacity comparison:
New economic scenarios (which Luke Ward believes will emerge naturally as costs decline):
1. Space manufacturing: Semiconductor fabrication (requiring billions of dollars in Earth-based factories, while space offers free vacuum conditions), pharmaceuticals (different crystal structures under microgravity), artificial organs, perfectly spherical lenses
2. Space-based solar power: No atmospheric attenuation, available 24/7
3. Point-to-point Earth transport: Starship can deliver 200 tons of cargo to any location on Earth within 40 minutes—governments have already studied the "rocket cargo" concept
4. Space data centers: Easier heat dissipation, easier power supply
Luke Ward specifically notes that Jeff Bezos' space vision (moving heavy-polluting industries off Earth) may converge with SpaceX's path once costs are low enough.
> "Starship is not 'the system for going to Mars,' but 'the system for making Earth-orbit business more profitable.' It launches satellites and space stations 364 days a year, and only 1 day to fuel astronauts." — Luke Ward
Luke Ward believes the entire launch industry remains supply-constrained — as satellite manufacturing costs decline, demand for launches is surging. Competitors include Amazon's Kuiper, Apple-backed Global Star, OneWeb, among others.
Government Market:
Luke Ward cautions that space is becoming a potential arena for conflict — traditional space assets such as GPS, communications, and intelligence would be prioritized for destruction in a first strike. However, existing international treaties prohibit the weaponization of space, and it is hoped that this framework will be maintained.
Luke Ward emphasizes that Musk's "Mars mission" is a key source of competitive advantage — it attracts the world's top talent and forces the company to continuously break through rather than rest on its laurels (e.g., relying solely on Falcon 9 for profitability).
Management division of labor:
> "If SpaceX were a traditional company, they would maximize the asset utilization of Falcon 9. But because Musk constantly pushes for engineering excellence and pursues the next goal, from a purely financial perspective, this is highly beneficial." — Luke Ward
Luke Ward candidly outlines the key risks:
1. Technical Risk: Starship still needs to demonstrate capabilities such as reusable spacecraft, in-orbit refueling, and crew safety
2. Scaling Risk: Mass-producing hundreds of the most advanced rocket engines at the Starbase facility in Texas—"Building one is easy; building a thousand is far harder"
3. Timeline Risk: Starship's progress directly impacts the expansion pace of Starlink—"Time is money"
4. Regulatory Risk: FAA approvals and environmental assessments—"The regulator's job is to be conservative; the entrepreneur's job is to take calculated risks"
5. Competitive Risk: Rivals such as Amazon Kuiper and OneWeb are catching up
Luke Ward specifically notes that SpaceX's capital intensity has significantly decreased—"If you can afford to lose 10 rockets at a cost equivalent to what a competitor spends to build just one, that is a massive competitive advantage."
Luke Ward acknowledges that valuing SpaceX is "3D chess" — the key lies in quantifying the flywheel effect between the cost curve and price elasticity. Baillie Gifford’s approach:
1. Qualitative inputs prioritized over quantitative inputs: Rate of cost improvement, Starlink user terminal cost curve, launch frequency acceleration
2. Scenario analysis: Base case vs. 5–10x upside case
3. Core conviction: Whether the company is "getting better and better" — "So far, that has held true"
> "You have to believe this company is special — it is pioneering the industry, not just existing within it. It is entering the last engineering frontier of the economy — space, which could be an infinite economic opportunity." — Luke Ward
| Position | Analyst View | Key Data |
|---|---|---|
| SpaceX | Bullish | ~400 Falcon 9 launches, 320 reuses; Starship target cost $10/kg; ~6,000 Starlink satellites |
| Starlink | Bullish (core growth engine) | US subscription ~$120/month; global potential users hundreds of millions to billions; direct-to-cell feature to launch within 1-2 years |
| Amazon Kuiper | Competitor | No specific data provided |
| OneWeb | Competitor | No specific data provided |
| Apple/Global Star | Competitor | Apple invested in Global Star |
| John Deere | Partner | Partnering with Starlink to connect all vehicles |
| Shift4 Payments (Jared Isaacman) | Customer | Paid launch for Polaris project |
1. Luke Ward: SpaceX is both a technological and commercial innovation — "Many think this is just a technology story, but what truly matters is how to make the technology economically sustainable, thereby funding further technological innovation."
2. Luke Ward: The cost curve is the core — From $1 million/kg to $10/kg (Starship's target), "When launch costs are comparable to postal services, business models like Amazon will emerge."
3. Luke Ward: Starlink is the key to the financial flywheel — "Starlink's revenue will significantly exceed Falcon 9 launch revenue, serving as the funding source to sustain Starship's ongoing innovation."
4. Luke Ward: Starship is first and foremost an Earth-orbit economic machine — "It launches satellites and space stations 364 days a year, and only 1 day for fueling astronauts. Don't view it solely as a Mars spacecraft."
5. Luke Ward: The biggest misconception is that commercial space exploration is 'naive' — "Long-term investors should be excited about SpaceX's Mars mission, as it attracts the world's top talent and forces the company to continuously break through."
6. Luke Ward: Space manufacturing is the next big market — "Semiconductors, pharmaceuticals, artificial organs — if costs are low enough, many things that should happen in space will naturally occur."
7. Luke Ward: Direct-to-cell connectivity will transform the industrial economy — "Remote activities like agriculture, mining, drilling — these are where automation and robotics can have the greatest economic impact, and Starlink provides the infrastructure."
8. Luke Ward: SpaceX's 'getting better as it scales' trend is a core investment belief — "If a company improves as it grows larger, that is the most powerful investment logic. So far, SpaceX has consistently done so."