Nineteen months ago, SpaceX scored a coup.
Beating out a whole host of rival bidders -- defense contracting giants Lockheed Martin (LMT 0.02%), Northrop Grumman (NOC +0.03%), and Leidos (LDOS 1.25%) among them -- SpaceX snagged a gigantic $2.9 billion contract to build the a new lunar lander for NASA... and put American astronauts back on the moon for the first time in 50 years.
NYSE: LDOS
Key Data Points
Now, not everyone applauded this news. Blue Origin in particular, which had partnered with Lockheed and Northrop to bid on the moon lander contract, went so far as to sue over NASA's decision. Perhaps in an effort to placate these parties, NASA soon announced a follow-up competition at which the losers in round 1 -- all of the companies named above, and perhaps new entrants such as Boeing (BA 0.48%) -- will get a chance to bid to build a different kind of lunar lander for the space agency. All of these companies will have to wait in line, however, because NASA just handed SpaceX a new contract for a second lunar lander.
And another $1.15 billion to build it.
Two is better than one
As soon as 2025, SpaceX will have the honor of putting its Human Landing System (HLS) lunar lander on the moon twice -- first in an uncrewed demonstration project, then to be followed by a crewed landing on the moon as part of NASA's Artemis III mission in 2025. But SpaceX won't stop with that.
As NASA announced in a press release last week, it will also hire SpaceX to put a second HLS lander on the moon as part of the Artemis IV mission, scheduled to take place in 2027. This second lander variant -- unimaginatively named the "Option B" lander -- will differ in design from SpaceX's original HLS. According to the press release, Option B will be tweaked to support "NASA's sustaining requirements for missions beyond Artemis III, including docking with [the lunar Gateway moon space station], accommodating four crew members, and delivering more mass to the surface."
What it means for investors
This is obviously great news for SpaceX. It seems the private space company will have the opportunity to prove its landers' abilities at least three times before any of the publicly traded space companies even get a chance to try out a competing product. This will enable SpaceX to essentially monopolize NASA's launch capacity for lunar landers for three straight years -- giving a clear first-mover advantage to SpaceX.
Granted, in the meantime, SpaceX's rivals will be competing for the right to build an alternative variant lunar lander that can launch post-2027 under NASA's Sustaining Lunar Development (SLD) competition. Assuming the price is right, it's entirely possible that Blue Origin and its partners, or Boeing, or Leidos, will eventually join SpaceX on the moon.
But this actually raises another problem for SpaceX's rivals.
Consider: The price SpaceX has quoted to build its Option B lunar lander -- $1.15 billion -- represents at least a 21% cost reduction in comparison to the $2.9 billion it is charging for its first two HLS landings. And that's a conservative estimate. If you consider the price tags per lander, you could argue that SpaceX has dropped its price for Option B by as much as 60%!
And here's the thing: The cheaper SpaceX's landers get, the harder it's going to be for companies like Blue Origin (or Boeing, or Leidos) to beat that price -- or even match it.
During the original HLS contract competition, SpaceX easily undercut its rivals on pricing, with Blue Origin and Leidos reportedly asking for $5.9 billion and $8.5 billion, respectively, to build their landers. That's a respective five times, and more than seven times the price that SpaceX is now charging to build HLS Option B.
So what's the upshot for investors here? Unless SpaceX's rivals have been able to dramatically reduce their costs over the last 19 months, the likelihood of their being able to offer NASA a price anywhere near as good as what SpaceX is offering seems very slim indeed. In order to compete for a piece of the lunar lander market, they're probably going to have to operate at a loss -- which isn't a great way to run a business, and won't be great for their stock prices.
Long story short: If you want to invest in a space company with lunar ambitions, it's probably time to figure out a way to invest in SpaceX.
