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The trillion-dollar question

April 18, 2024
in Science
The trillion-dollar question
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Forecasts from Goldman Sachs, Morgan Stanley and other heavyweight investment banks of a trillion-dollar space economy by 2040 have echoed across the industry for more than half a decade. While loose definitions from some analysts about what constitutes a space company have met scoffs — does Uber really count because its ride-hailing service relies on GPS? — there is consensus of unprecedented growth ahead even for conventional space businesses. Exactly how and when total annual revenues from satellites, launchers, and what most people deem to be space businesses could triple from around $330 billion today is a different story.

“That is indeed a trillion-dollar question,” said Lucas Pleney, a consultant at space research firm Euroconsult, because “such long-term market projections usually come with a lot of uncertainties.”

According to Pleney, the short answer is it is indeed feasible that the space economy could reach a trillion dollars in 16 years, outstripping the growth rate of global gross domestic product (GDP).

However, there is plenty of potential for unforeseen “black swan” events that could dampen projections over this timeline. Despite widespread optimism across the industry, the takeup of connectivity, imagery, and other services from space may happen much slower than anticipated, shifting market estimates to the right.

“Reaching the trillion-dollar economy will only happen if [business-to-consumer] markets are widely adopted,” Pleney added, including broadband services from Starlink and other megaconstellations under development.

“If space remains as it is now, it is likely that we will never reach the trillion-dollar mark but stagnate.”

Bottom-up forecast

Researchers from McKinsey & Co. and the World Economic Forum have just completed their own projection for the space economy after a year of work to get a more granular view of the apparent growth ahead.

“We didn’t really feel like there was a true, bottom-up, use case-based” approach with the facts that “supported whatever number someone would put out,” McKinsey senior partner Ryan Brukardt said.

Their report suggests the space industry will grow roughly 7% per year to reach $775 billion in 2035, outpacing the growth in global GDP by 150%. That would put space in line with the semiconductor industry, which is expected to grow by 6-8% per year into the 2030s.

Although the McKinsey/WEF forecast does not extend to 2040, Brukardt expects the industry to be close to hitting a trillion dollars by then.

And if space-dependent companies such as Uber are included in the mix, a prime example of what Brukardt calls “reach applications,” the space economy could grow from around $630 billion today to $1.16 trillion by the end of this decade, hitting nearly $1.8 trillion in 2035.

Reaching ubiquity

There are four main growth engines driving the space economy’s expansion:
1. Plummeting launch costs. Thanks in no small part to SpaceX’s rapid cadence and rocket reusability, the report says the number of satellites orbited annually has recently grown at a rate of 50%, while launch costs have fallen tenfold in the last two decades. SpaceX’s Starship/Super Heavy vehicle promises to deliver another major boost for launch availability and capacity, alongside other next-generation rockets coming to market.

2. Commercial innovation. Privately funded technological advances are enabling cheaper but increasingly capable satellites. Earth observation operators, for instance, are now offering services for identifying objects with a resolution of just 15 centimeters, improved from around three meters a few decades ago.

3. Broader investor ecosystem. Once confined to governments and then billionaires, the space ecosystem is now fueled by a variety of venture capitalists and private and public equity investors. Most recently, special purpose acquisition companies (SPACs), blank check firms that list on a public market before merging with businesses to fast-track investor exits, have propelled many young space companies to the stock market — for better or worse. A larger and more dynamic investment pool has brought in record funding for an industry with notoriously high capital needs.

4. Cultural adoption. Increasing geopolitical importance, cheaper and more available services, and standardized protocols that play nice with terrestrial networks are improving cultural awareness of space. The report notes government and business leaders are increasingly asking questions about what capabilities space could enable in the future.

Show me the growth

Government demand has underpinned the space economy from the outset, and despite solid commercial growth, the report anticipates state-sponsored investments will still account for nearly half the total market.

Government agencies are particularly important for driving demand for high-end products and services, and the need to bolster national security and autonomy will continue to see the United States, China, and other established space nations heavily invest in their intelligence needs.

On the civil side, the report forecasts growing investments for research and the capabilities needed to anticipate and respond to disasters.

Meanwhile, the number of space agencies worldwide will likely continue growing after nearly doubling from the 40 in place in 2000. This has important implications for civil space. The report noted how, in less than a decade since the United Arab Emirates set up its space agency, the country has already sent an astronaut to the International Space Station and a probe to Mars.

“There was a thesis years ago that commercial would vastly outstrip [government] in the very near term,” Brukardt said, “maybe it’s surprising, maybe it isn’t, but our conclusion is that national security, government, and civil funding is actually going to grow faster than I think we would have expected a few years ago.”

There is no question that the commercial market will overtake government, he added, mainly driven by services seeking to meet an insatiable demand for connectivity worldwide. Indeed, the growth in satellite broadband services is on course to easily outpace an ongoing decline in satellite TV, traditionally the mainstay of the commercial space economy.

But while the gradual demise of broadcast satellites marks the end of a golden age for the industry, the report notes the shift to online TV streaming benefits internet providers from both Earth and space.

Large constellations and multi-orbit connectivity networks promising lower latency and greater coverage should continue to drive satellite broadband adoption among consumers and businesses, including for cellular backhaul and Wi-Fi on planes, boats, and other vehicles terrestrial networks can’t reach.
The demand for data is expected to soar 60% over the next decade, balancing a forecasted 10% fall in data prices as multiple constellations contribute to a capacity glut.

A similar situation is playing out in space infrastructure. More satellites and frequent launches are needed to keep up with planned businesses, but spacecraft and rockets are also becoming cheaper. The per-kilogram price for launching a payload is forecasted to decline around 40% between 2023 and 2035, when the report anticipates super-heavy launchers like Starship would represent more than two-thirds of the market.

The launch sector is projected to grow from $13 billion today to $32 billion by 2035 to deploy this increasing volume and mass of spacecraft, helping the commercial satellite market triple to $12 billion.

Revenue for ground operations is set to jump fivefold to $11 billion as cybersecurity becomes an increasingly important issue for handling soaring amounts of space-based data.

Tempering expectations

The proliferation of space data and increasing access to orbit could pave the way to new revenue streams, pushing the space economy beyond the report’s $775 billion 2035 projection.

On the flip side, Brukardt says stalled access to space and terrestrial competition could bring the space economy’s trajectory more in line with GDP growth.

Decreased government funding would also impede the innovation needed to support the broader space ecosystem.

“There is obviously still a lot of government support across the entire ecosystem,” Brukardt said, “even startups and smaller companies are, in many cases, relying on the government to fund them.”

Much of the anticipated growth for the space economy relies on multiple moving parts quickly coming together in the next few years, such as the deployment of broadband constellations from Amazon and others seeking to compete with Starlink and Eutelsat’s OneWeb.

“The question is, is it too much too fast?” Brukardt said. “Are there enough users and consumers as quickly as some of these things may emerge?”

The McKinsey/WEF report anticipates an average of 180 annual launches between 2023 and 2035 to keep up with demand.

“There are a lot of new launch vehicles that are supposed to come to fruition over the next several years to really build capacity,” Brukardt added.

However, while any launch slowdown would impact the space economy, he said this is only really an issue over the next three to five years as Starlink competitors rush to deploy their satellites.

Near-term downer

For all the optimism over the coming decade, the current private investment landscape paints a strikingly bleaker picture for the year ahead.

Euroconsult’s Pleney pointed to a strong decrease in private funding for the space economy.

While worsening macroeconomic conditions such as high inflation and interest rates are not just depressing this industry, disappointing results from space companies that recently went public following a SPAC merger are not helping matters.

“The investors’ appetite can be quite volatile,” Pleney said, “and has a direct impact on the evolution of the ecosystem.”

Euroconsult sees further consolidation as a way to rationalize the space industry after a decade of expansion, following mergers between Eutelsat/OneWeb, Viasat/Inmarsat and L3Harris/Aerojet Rocketdyne.

More young companies that went public via a SPAC could also join Astra in returning to private ownership amid disappointing financial results.

“It is quite tough to predict whether the funds raised by private investors in 2024 will be higher than last year,” added Pleney, which came in at around $9 billion according to Euroconsult research.

Although the trillion-dollar economy is possible, he said it depends on the realization of several growth drivers that today seem highly uncertain, especially in the context of the global macroeconomy.

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