How SpaceX Reduces Its Cost?

SpaceX is an American aerospace manufacturer and space transportation services company. It was founded by Elon Musk in the year 2002. The main aim of the company was to reduce the space exploration cost and enable colonization in mars.

SpaceX is a great example of Vertical Integration to lower the costs of its deliverable. By producing most of its components in house, it is able to undercut its costs largely as compared to its competitors.

In 2001, Elon went to Russia to buy cheap rockets. But he failed to find rockets at an affordable price.

Later, Elon calculated that the raw materials for building a rocket actually were only three percent of the sales price of a rocket at the time. He realized that he could start a company that could build the affordable rockets he needed.

Hence Elon started SpaceX.

By applying Vertical Integration, producing around 85% of launch hardware in-house, and the modular approach from software engineering, SpaceX could cut launch price by a factor of ten and still enjoy a 70% gross margin.

SpaceX enjoys several advantages over its competitors because its competitor has a dispersed supply chain where various suppliers were producing at cost plus a profit margin, resulting in millions of inflated costs per launch.

SpaceX’s competitor United costs $460 million per launch whereas SpaceX’s cost is $90 million per launch, which is also falling due to its reusable design.

By adopting Vertical Integration, SpaceX

• Lower its price per launch.
• Increase profit margins.
• Better knowledge of the product and its supply chain.

SpaceX is a great example of Vertical Integration.

I have also written a precise article regarding Verticle Integration, its advantages & disadvantages, examples, and much more.

Click here to read it.

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