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South African-born entrepreneur Elon Musk, 40, ended up in the United States because, he says, it's where great things happen. Musk is gambling that his company, SpaceX, can change the world with its Falcon rockets and Dragon capsules by carrying cargo, and eventually people, to orbit. (Space X)

Is SpaceX changing the rocket equation?

1 visionary + 3 launchers + 1,500 employees = ?

You can be rich enough to buy a rocket and still get sticker shock. In early 2002, PayPal co-founder Elon Musk, already a multimillionaire at 30, was pursuing a grand scheme to rekindle public interest in sending humans to Mars. A lifelong space enthusiast with degrees in physics and business, Musk wanted to place a small greenhouse laden with seeds and nutrient gel on the Martian surface to establish life there, if only temporarily. The problem wasn’t the lander itself; he’d already talked to contractors who would build it for a comparatively low cost. The problem was launching it. Unwilling to pay what U.S. rocket companies were charging, Musk made three trips to Russia to try to buy a refurbished Dnepr missile, but found deal-making in the wild west of Russian capitalism too risky financially.

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On the flight home, he recalls, “I was trying to understand why rockets were so expensive. Obviously the lowest cost you can make anything for is the spot value of the material constituents. And that’s if you had a magic wand and could rearrange the atoms. So there’s just a question of how efficient you can be about getting the atoms from raw material state to rocket shape.” That year, enlisting a handful of veteran space engineers, Musk formed Space Exploration Technologies, or SpaceX, with two staggeringly ambitious goals: To make spaceflight routine and affordable, and to make humans a multi-planet species.

Nine years later, SpaceX employs 1,500 people and occupies a half-million-square-foot facility in Hawthorne, California, that used to produce fuselage sections for Boeing 747s. Today it is filled with rocket parts, including stages and engines for its Falcon 9 boosters, which can place up to 23,000 pounds of payload in low Earth orbit. Off to one side sits a slightly charred, cone-shaped Dragon capsule that a year ago became the first commercial spacecraft to be launched into orbit and recovered. Sometime next year, SpaceX plans to launch the first of 12 Dragons to the International Space Station, each hauling six tons of cargo, under a $1.6 billion resupply contract with NASA. More than two dozen commercial launches are also booked. And by 2015, the piloted version of Dragon is expected to be ready to pick up where the space shuttle left off, carrying astronauts to and from the orbiting outpost.

All very impressive. But what really sets SpaceX apart, and has made it a magnet for controversy, are its prices: As advertised on the company’s Web site, a Falcon 9 launch costs an average of $57 million, which works out to less than $2,500 per pound to orbit. That’s significantly less than what other U.S. launch companies typically charge, and even the manufacturer of China’s low-cost Long March rocket (which the U.S. has banned importing) says it cannot beat SpaceX’s pricing. By 2014, the company’s next rocket, the Falcon Heavy, aims to lower the cost to $1,000 per pound. And Musk insists that’s just the beginning. “Our performance will increase and our prices will decline over time,” he writes on SpaceX’s Web site, “as is the case with every other technology.” Like the Chinese, many observers in this country are wondering how SpaceX can deliver what it promises.

After nearly a decade of struggling to reach this point, Musk isn’t about to reveal the finer details of how he and his privately held company have created the Falcon and Dragon. They don’t even file patents, Musk says, because “we try not to provide a recipe by which China can copy us and we find our inventions coming right back at us.” But he talks freely about SpaceX’s approach to rocket design, which stems from one core principle: Simplicity enables both reliability and low cost. Think of cars, Musk says. “Is a Ferrari more reliable than a Toyota Corolla or a Honda Civic?”

Simplifying something as complex as a rocket is no easy task. And historically, most rocket makers have made their top priority performance, not cost. The space shuttle’s main engines were the highest-performance rockets ever flown, but they helped make the shuttle what Musk calls “a Ferrari to the nth power” that required thousands of worker-hours to refurbish between flights. The Atlas and Delta rockets purchased under the government’s Evolved Expendable Launch Vehicle program serve NASA and Department of Defense customers whose main concern is reliability. “What the EELV program does is launch national reconnaissance satellites that cost billions of dollars a pop,” explains former NASA associate administrator Alan Stern. “[Defense department customers] don’t care whether [the launch cost] is $100 million or $300 million; it’s in the noise. What they want is a guarantee it’s going to work.” And, says Stern, the track records of Atlas and Delta are nearly flawless. “They’re spectacular…. That said, they’re very expensive.”

United Launch Alliance, the consortium of Boeing and Lockheed Martin that produces both the Delta and the Atlas, does not make its prices public. But budget documents show that in 2010 the EELV program received $1.14 billion for three rockets—an average of $380 million per launch. And prices are expected to rise significantly in the next few years, according to defense department officials. Why? Musk says a lot of the answer is in the government’s traditional “cost-plus” contracting system, which ensures that manufacturers make a profit even if they exceed their advertised prices. “If you were sitting at a n executive meeting at Boeing and Lockheed and you came up with some brilliant idea to reduce the cost of Atlas or Delta, you’d be fired,” he says. “Because you’ve got to go report to your shareholders why you made less money. So their incentive is to maximize the cost of a vehicle, right up to the threshold of cancellation.”

That’s a little overstated, says Stern. Yes, rockets are expensive largely “because the system allows it.” But in today’s economy, ULA’s military customers are calling for prices to come down. “I know that they have an incentive to reduce their cost,” Stern says, “but it’s at the margin.” In other words, ULA’s cost-saving efforts are limited by the high overhead associated with traditional ways of building and launching rockets.

Musk says that overhead starts with how the launch vehicle is designed. The workhorse Atlas V, for example, used for everything from planetary probes to spy satellites, employs up to three kinds of rockets, each tailored to a specific phase of flight. The Russian-built RD-180 first- stage engines burn a highly refined form of kerosene called RP1. Optional solid-fuel strap-on boosters can provide additional thrust at liftoff, and a liquid hydrogen upper stage takes over in the final phase of flight. Using three kinds of rockets in the same vehicle may optimize its performance, but at a price: “To a first-order approximation, you’ve just tripled your factory costs and all your operational costs,” says Musk.

Instead, from the very beginning, SpaceX designed its Falcon rockets with commonality in mind. Both of Falcon 9’s stages are powered by RP1 and liquid oxygen, so only one type of engine is required. Both are the same diameter and are constructed from the same aluminum-lithium alloy, reducing the amount of tooling and the number of processes and resulting in what Musk calls “huge cost savings.”

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