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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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SpaceX’s Next Act Is A Critical One

For investors in the next generation of energy and in the emerging next-gen aerospace field, SpaceX’s story is a useful lesson.

It has been a tough three months for SpaceX. The company has tremendous pressure after the failure of their launch last September. The orbital launch business is brutally competitive and with SpaceX trying to disrupt and oust existing competitors like Boeing and Lockheed Martin, the competition has looked for any opportunity they can to capitalize on weakness at Elon Musk’s most high flying company.

SpaceX has been controversial in many ways for a long time – the firm lacks the financial footing that deep-pocketed competitors do, and it engineers its rockets in a markedly different fashion. The company has had a lot of high profile trouble with their goal of creating reusable rocket, but beneath the surface, the firm has also done other things differently, such as using super cooled oxygen in place of conventional rocket fuel. That change makes SpaceX’s rockets more economical, but it also makes the engineering trickier.

All of this is merely to say that SpaceX’s next act is a critical one. The firm was set to launch its next rocket on Sunday, January 8th, but that launch got delayed due to bad weather around the launch area. The new launch date for the Space X rocket is now January 14th. Tension could hardly be higher.

If SpaceX can return to form and complete a successful launch, questions about the firm will disappear – especially if the firm is able to re-land the rocket upon reentry. If SpaceX suffers more problems, doubts about the firm will grow exponentially though.

The launch issue in September was completely understandable (especially since no one was injured). The issue was related to the fact that SpaceX is using a novel form of fuel.

According to SpaceX, the FAA’s investigation noted that the problem was related to “buckles” in the inner liner of one of the composite overwrapped pressure vessels (COPVs), which are used to store liquid helium. SpaceX says “Although buckles were not shown to burst a COPV on their own, investigators concluded that super chilled liquid oxygen can pool in these buckles under the overwrap. When pressurized, oxygen pooled in this buckle can become trapped; in turn, breaking fibers or friction can ignite the oxygen in the overwrap, causing the COPV to fail,” SpaceX explained in an anomaly update. “In addition, investigators determined that the loading temperature of the helium was cold enough to create solid oxygen, which exacerbates the possibility of oxygen becoming trapped as well as the likelihood of friction ignition.” Related: Shale Break-Even Level Could Rise $10 In 2017

SpaceX’s next launch will be to put a set of 10 Iridium communications satellites into orbit around Earth. Underscoring the tension around the issue, the cost for many of SpaceX’s payloads can run into the hundreds of millions of dollars.

For investors in the next generation of energy and in the emerging next-gen aerospace field, SpaceX provides a useful lesson. The company’s problems show that it is never easy to disrupt an established industry and that doing so requires lots of cash and the patience to deal with setbacks. The enormous losses being incurred by Uber at present demonstrate that as well.

From private space contractors like SpaceX to makers of perovskite crystal solar panels, there are a lot of new technologies that will probably be the cornerstone for new IPOs over the next few years. Those IPOs will have enormous potential, but they also have enormous risks. The tension for SpaceX on this next launch is high now – imagine if investors had their future riding on it as well.

By Michael McDonald of Oilprice.com

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  • KDavis on January 12 2017 said:
    I think the lesson explained here was learned during the renaissance and has been understood for several centuries now.

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