Latest / Normal Men / Episode 59 - The TeXrrible SecreXt of SpaceX

Transcript

Episode 59 - The TeXrrible SecreXt of SpaceX · Normal Men

• 0:00
  Quantian: I'm podcasting from my downstairs cuck chair in the small bedroom, the pod chair. Do we want to make clear that Eric and I work together? That Eric is my minion and he's like my little Renfield, and I make him do all of the tasks that I don't want to do, like read S1s. Which Eric, I hope you read this S1 because I sure as didn't.
• 0:24
  Eric: It's psychotic.
• 0:25
  Ed: Isn't that what AI is for?
• 0:27
  George: Yeah, I thought we. I thought we solved this problem like two or three years ago.
• 0:31
  Quantian: What? Put it in the air because the first 50 pages are just pictures of rockets taking off, so there's like nothing to analyze and all of the juicy stuff hasn't been put in the prospectus yet.
• 0:42
  Eric: So what you're saying is this S1 was targeted at U2 in the same way those Tesla earnings calls are targeted to drive Neidermeier insane? It's basically anyone that runs a long short fund is probably going to just be wanting to kill themselves.
• 0:56
  Quantian: It's not good. It's very, very bad.
• 0:58
  George: A certain of long short fund like the reality based investing community will describe it as. This is Normal Men, a podcast from four men who are clinging desperately to normalcy in an era when that's asking a bit too much.
• 1:16
  Propter: I'm George In Charlotte, in D.C. i'm
• 1:18
  Eric: Proctor Malone in Outer Florida. I'm Low Tax Speedrun enjoyer.
• 1:22
  Ed: And I'm Ed in Boston.
• 1:28
  George: So we have two guests on the podcast this week. Eric and Quantin are both longtime followers of the Elon Musk universe, and they're here to Talk about the SpaceX X1. SpaceX dropped their S1, which is basically the. We'll get into this more later. But the basic information that they want you to know about the company as a potential investor before an IPO a couple of weeks ago, and the IPO is slated for mid June.
• 2:00
  Quantian: And.
• 2:01
  George: And we haven't heard how the roadshow is going yet, but we do have a bunch of financials that we didn't have before for a fiendishly complicated set of companies run by an absolutely horrible human being. So, Eric and Quanshin, welcome to Normal Men.
• 2:18
  Quantian: Thank you. Good to be on the podcast.
• 2:20
  Eric: Yeah, thanks for having us, Gronk. We are so big.
• 2:23
  George: I wish I could describe either of you as normal.
• 2:26
  Quantian: Yes, you've made an exception and invited two of the least normal men on Blue Sky.
• 2:32
  Ed: I mean, I'm here every week. What's your point?
• 2:35
  Propter: Yeah, as always, it's aspirational before we
• 2:40
  George: get to Talking about the S1 since I'm employed in the financial industry and Eric and Quantien are as well. We really need to be serious about this disclaimer. Nothing that you hear on this podcast is financial advice. Do not make financial decisions based on this information. Always consult a proper financial advisor before doing so and someone that can assess your overall financial picture. We don't know anything about that financial picture for you, dear listener, because this is a one way medium. So don't take this as investment advice. It is not investment advice. It is for informational purposes only and we're not here to get sued, so don't do that. Yeah, that's, that's, that's the big disclaimer and it is very important and I'm very serious about it. I guess where we should start is Eric and Quantin in whichever order you two would like to do this. What are sort of your bona fides for, for talking about Elon Musk's latest pile of dog turd to be offered to the public markets?
• 3:45
  Quantian: Eric, you can go first on this one.
• 3:47
  Eric: Yeah, so this is, this one's kind of near and dear to my heart. I mean if you work in, if you work in equities and if you pay attention to public markets, that's a huge part of it regardless. But, and so I think, you know, and this is because of Tesla obviously has been kind of, this, I don't even want to say elephant in the room. It's been this kind of dominant force in, in finance, both in how large its market capitalization is, but also like kind of how much oxygen it kind of perpetually is, has taken in the room. And this is across all forms of media and, and you know, I mean I think there's been just so much chat about Tesla and it's kind of just hung out at this elevated kind of just if you use any sort of like traditional metric of, of valuing a company, especially something that a company that makes something like cars, it's just, has continually traded at a significant premium even while they've been losing and they've been under earning, you know, automakers and other, other peers. And that's just been the thing that's been pervasive and I think anyone that kind of pays attention to markets understands that. And then going into SpaceX, I think this is the one that for me is very interesting and part of it is that I spent, I have a publication, I write that looks at kind of governance and compliance and environmental stuff and how it's like an esg. I mean, the name of my publication is called ESG Hound. And we look at. And so I look at, you know, kind of how markets and governance and regulation all lines up. And for me, this is kind of passionate because I, you know, wrote pretty significantly about some of the shortcuts that they were allowed to take, some of the governance issues and some of the regulatory changes that Musk was able to bully through. I was pointing this stuff out in 2021, you know, under my name, you know, writing this. And I think a lot of people have seen how that's kind of just you know, blossom into, into what it has post Trump. I don't think we need to walk through all the specifics of it. I'm guessing everyone here listening kind of is aware that, you know, kind of running Rush shot is a Trumpian thing. And then Musk has been, you know, pretty close to it. But. Yeah, so I think for me, I've followed the company pretty very closely. And I think this, I think for me, before I hand it, hand it over to Q, is that. I think the one thing that was really fascinating to me is if you talk to, to people about the company, you know, if you talk about their operations and shortcuts, they take that. That don't look right. As someone who has worked, you know, in hard industry before, you know, people, people were just, we're always like, oh, well. But like, this is like, you know, you can, you can criticize any of these other Musk ventures for, you know, not making much money or for, you know, not for, for growing slower, but, you know, Space X. That's the one that, that, that's the, that's the one where he's. It just like, it's obviously successful and we look at the numbers in the S1 and we'll dig into them. And I think it's really, it's just like kind of, it's, it's not that impressive of a company in terms of, you know, its revenues and certainly it's kind of, you know, accrued losses over the years. So we have a company that's going public that will be larger than, than, than Tesla and is like in financially worse shape both in the top and bottom line. So we'll see it, we'll see how it works. And yeah, I mean, I'm very excited for it, but it's also, it's going to drastically change markets. So we'll see.
• 7:19
  Quantian: Yeah, Eric was being very modest here, but he does have sort of an extremely relevant, extremely Relevant resume. I'm going to gas him up a little bit. But he was sort of one of the OG Tesla Q posters on the site formerly known as Twitter many, many decades ago, starting in like what, 2013, 2015. And I don't think you ever went so far as to fly drones over the Freeman production plant, but you got pretty close at some point. So Eric has sort of background in kind of chemistry and environmental science and worked for these big oil companies as an evil greedy oil extractor. He was one of those guys that was the 50 companies doing all the global warming. That was him. It's all his fault. Whereas I am much less impressed that I'm basically a failed mathematician who got into short selling because I damaged my brain on Twitter. And so I now work at Equity Long Short Fund, sort of junior portfolio manager and have for the past basically half decade. So I just sit on a computer screen clicking things and you know, nothing, nothing I do is particularly important. There's no like pipelines exploding that depend on me doing my job. Right. So it's a little bit of a more posting conducive environments.
• 8:39
  Ed: Yeah.
• 8:40
  Eric: And I mean just, just, just to be clear, like I spent you know, 10 to 15 years in oil and gas and chemicals, as I mean of a master's in engineering, I spent a significant amount of time in project management and compliance and you know, kind of came into finance through, through a roundabout fashion. But yeah, I'm pretty aware of kind of some of these, you know, I mean, I know there's been a lot of talk this year about, you know, the data center in Memphis and I'm pretty familiar with those, you know, both operations and kind of some of the shady stuff that's going on there which we can get into. But you know, I imagine we only have a certain amount of time.
• 9:19
  George: Yeah. So I think before we get into more detail, just some quick top line numbers of what this looks like financially. SpaceX grew revenue 35%. The company IPOing at SpaceX, which includes the company formerly known as Twitter, Musk's AI business and both the rocket launch business and the satellite business. They grew revenue 35% year over year in 2024, 33% in 2025 and that's down to 15% year over year. In the first quarter of this year they made actual ebit margin in 2024, a small operating profit basically before sort of capital costs is kind of the way to think about it. And they have very much not done that the last couple of years. They spend a Huge amount of their revenue on R and D, like almost half, actually three quarters in the first quarter of the year. So basically doing R and D is the vast amount of the revenue that they bring in their depreciation is very high because these are very capital intensive businesses. And we'll get into why that is. And they also invest in capital expenditures very heavily. So twice as much capex as revenue in the first quarter this year. They also have a lot of debt and this is something that I think wasn't really obvious beforehand, but they have more debt than they have revenue by 60% and they spend about 14% of their revenue on interest costs which is just enormous for a late stage IPO company and won't be true for instance anthropic or OpenAI if they end up ipoing. Those are sort of the top line financials. And so like before we even get into the very many problems with, you know, talking about this from a, you know, like normal company perspective, the numbers are just bad. Like they're just bad. Eric, what was your sort of initial view on the numbers?
• 11:20
  Eric: Yeah, I mean, I think one thing is if you actually go and you know, if you go search my handle a couple years ago, you could see just some of the most deranged people, most of them not in finance, you know, kind of these like, you know, fanboy types that, that follow space, you know, people are always just like, oh, it's this massively profitable business. And so it's a little bit of satisfaction to be able to say like hey look, I mean like it clearly isn't, I think if you look at the numbers both like in the top line and bottom line, it is really important to like separate out the legacy business of SpaceX which is, you know, their, you know, that they launch rockets, they're, they're at about 100 launches per year. Most of them do serve their own internal, you know, CapEx needs for deploying, you know, Starlink, which is the big source of their revenue. But they also have government contracts to supply the space station, do launches and they also do commercial launches. So just like really like looking at the numbers, you know, the, the, the top line, you know, is about what people could put together from like what we know in public documents, government contracts and, and billing reading, you know, a read through of that then like obviously then, so looking at that kind of independently, you know, you're looking at, you know, the crude losses over time have been, you know, somewhere in like the, I think I tried to back out some of the the data center stuff, but it's like in the upper 30s of billions of dollars was like, I think it was like $39 billion of accrued losses coming into it. So just separating those two things out is like really important because a lot of people are just like hey look, they lost $6 billion, you know, in 2025. But those, that, that you know, corporate level balance sheet and income statement is, is a combination of the very, very money losing in capital intense, you know Xai and Twitter to x Twitter operation. And I think you know, just, just kind of like yeah, the numbers are bad but I think, I think it's just really important to contextualize that. You know just looking at any sort of, you know, we, you know, if you just want to be like hey, what's you know, people hear, you know, the PE ratio or if you, you look at how much, you know, capital is going to return to investors over time. I mean it's, it's, it's, it's either non existent or negative depending on your time frame and business unit you're looking at. But I think really if you just look at the top line and I think if you just look at this is a company that you know, had $18 billion in revenue in 2025 and it's going public at not 10 times that number, but a hundred times. I mean that number for such a large company is just, you know, unfathomably big. And so it could be like a pretty good business if I don't think it is. I mean like the, the, the, the earnings are bad and, and the losses are not good. But even if it was like a decently profitable company at, at a hundred times revenues for a, you know, capital intensive business like this is, it's, it's, it's insane. Like I don't even know how else to put it.
• 14:20
  Quantian: I just pulled this up here. This is the biggest companies in the world. So SpaceX will be the seventh largest company in the world at $2 trillion. It would be I think the eighth or ninth largest at 1.8. But I think everybody expects it's going to sort of go up a little bit from the IPO price. And every company that's bigger than it has multiple hundreds of billions of dollars worth of revenue and usually multiple hundreds of billions of dollars worth of profit. So like the Nvidias, the Googles, the apples of the world are not much bigger in market cap. They're maybe two or three times the size but they are substantially more profitable and substantially higher revenue and so the quote I always think of was there's a quote from the CEO of Sun Microsystems, and this would have been 2002, 2003 kind of post the collapse of the dot com bubble, where he basically went off on a bunch of analysts who were complaining about why his stock price was down and you know, the company was sucking. And he basically said, look, don't blame me. You guys were the ones who are buying my stock at 10 times revenue. And at 10 times revenue, you know, I've got to put every single penny that I make into revenue with zero spending on employees, zero spending on cost of goods, zero spending on R and D, zero spending on taxes, and still it's going to take you a decade to get your money back. And even after that decade, you would have been better off in treasury bonds. So, you know, don't blame me that the Stock is down 80 or 90% because you are the ones buying it in the first place. And similarly, that was at 10 times, this thing is at 100 times. So they would need to have every dollar of revenue go back to shareholders for the next century and they would still not be as profitable as just buying a Treasury bond. So this level of sort of extreme disconnect is really, really hard to produce anything resembling positive returns. You can say a lot of people talk about price to earnings ratios or price to free cash flow, but there are a lot of times where a business maybe isn't earning much money, but it can still be a good investment. You could be buying an oil company when the price of oil is depressed, or something super cyclical, or maybe the company just had something weird going on in their earnings, they settled a lawsuit, et cetera. And so they didn't make much money, but maybe they could make a lot more money in the next year or two. It's really, really hard to massively grow revenue from a low base and basically grow into your valuation. So essentially, you know, if you, if you look at a sample of stocks that traded for over 100 times price to sales, like the median return of those over the next five to 10 years is like minus 90 to minus 95%. There's really only one kind of company that can sort of substantially grow price from low to zero revenue, which is biotechs. And you know, to the best of my knowledge, SpaceX is not really developing like a Zempic 2.0 that would allow them to grow its revenue at the rate that the valuation is implying.
• 17:11
  George: If you wanted to compare it to other highly touted IPOs I mean, anthropic just raised funds last week at a $965 billion valuation. They were talking about a $47 billion ARR. Just think of that as like revenue at an annual rate, right? So at that point you're talking about 20 times sales. But there's a huge difference between the SpaceX business, which is involved in AI, to be sure, and Anthropic. Anthropic's ARR has gone up by a factor of five this year, if I recall correctly. Off the top of my head. I made this chart this week, so I should have this committed memory. But you know, they've gone from, you know, low single digit billions ARR to near 50 billion in like six months. And there is enough growth there that like, hypothetically you could see an outcome where that ends up making sense. Now, they're not public yet either, and they may IPO at a higher price. And I'm not saying that means they're going to be, you know, fairly valued at ipo. But again, that's one fifth of the valuation you're talking about for Facebook or, sorry, for Space X. I just like how it blows my mind that anybody is talking about this with anything other than derision, just strictly on the numbers. Forget Elon Musk, forget everybody else. It just forget any qualitative analysis of the business, which we will get into that too. I just, I don't understand, I don't understand where it's coming from.
• 18:34
  Ed: Are they though?
• 18:35
  George: Like, there are a lot of people making the case it's a good business.
• 18:39
  Ed: Really. That blows my mind because, like, I literally haven't seen it. Like, what are they even? What, what's the, what's the positive case?
• 18:46
  Quantian: They are on X, the Everything app. So that's probably why you haven't seen it. So there is a very good reason why you cannot browse X without running into like 10 positive tweets about SpaceX, other than the very obvious one of it's literally part of SpaceX. But I posted some charts about this on my account, both Bluesky and Twitter, and it is sort of existentially important for the venture capital industry that this IPO is a success at the highest valuation possible. SpaceX has been raising money pretty consistently since 2009. We can sort of have a digression into how VC works at a granular level, but you can think of basically any VC that has been activated.
• 19:31
  George: I think we absolutely should do this. Yes, should talk because VC is genuinely very interesting as, as like a way of creating returns. It's, it's not all snake oil. Although there's a lot of snake oil.
• 19:42
  Quantian: There's a lot of snake oil. Yeah, but so, so VC works like a little bit differently than sort of traditional investing. So, like, if you want to put money into an S&P 500 fund, you just call up your broker, you wire them, you know, $100 million because you're Harvard or whatever, and then they buy, they buy the shares and they're in your account. T one day later. With VC, you basically commit to a specific fixed vehicle, which is called vintage. It's not as tasty as most vintages, but that's what it's called. So you would be invested in Andreessen Horowitz Fund 2, which is a 2009 vintage, because it sort of went around and collected all of these checks from people in 2009. And so you tell A16Z like, hey, I'm going to give you guys $100 million. And they're like, okay, great, we'll tell you when we want you to give us this money. And we'll have sort of certain agreements that you, like, are legally obligated to give us this money when we ask for it, yada, yada, yada. And so then they will say, okay, we've got a bunch of people who have committed to give us money. Now we're going to go around and find a bunch of investments. And so there's like a two, three, four year process where they're going around and they're talking to founders and they're negotiating rounds, and every time they find somebody they want to invest in and they say, great, we're going to give you $10 million. They then go to their LPs, to Harvard or whoever and say, hey, we found a guy. We want to give $10 million. Please just wire us $10 million and we'll give it to them. And so that process continues for a couple years and then they basically close the books. They say, we've used up all of your money. We're just going to sort of let this simmer and see what happens to these companies. And so then usually the VC fund will go out and raise another fund and sort of the process will repeat. But like, each sort of individual set of investments folds into its own fund. So there's no, like, you know, if you're invested in Citadel or a hedge fund, there's just one fund and you can put money in and take it out whenever you want to. When you're invested in a VC fund, you kind of have this pile of legacy funds, one from 2008, one from 2010, one from 2012, and they all pay out separately and individually. And the reason why this is relevant is because these funds have been taking longer and longer to mature and they've been getting bigger and bigger as time has gone by. VC, 20 or 30 years ago, your funds would have been tiny and they would have paid out their money relatively quickly because the companies in it would have IPO'd at a pretty expeditious rate. After a couple of years, Maybe you have $100 million valuation, you're IPOing in the 90s now, companies are waiting until they have literally trillion dollar valuations and still aren't ipoing. So what used to be a 5, 7 year payoff period is now like a 10, 15 year payoff period. And so SpaceX has been in basically every major VC fund since 2008, 2009 when they started really aggressively raising outside capital. So there's this huge tail of like 15 years of VC investments that is all involved in SpaceX in one way or another. And basically the entire ability of VC to say like we are an asset class that generates positive returns depends on these like 15 years of funds that all have giant SpaceX exposure cashing out and returning that SpaceX money to investors.
• 23:05
  George: I'd also just note like this, this evolution of VC from these relatively short cycle, lots of companies, as soon as someone gets to their marker 100 million I is like a decent way to think about it. You IPO and you recycle the capital back to LPs. That process created some absolutely massive winners and created some, some really good returns. And that drew in more capital, which then forced the VC funds to change how they did business and helped create this longer and longer Runway, ever longer Runway, because ever more capital into VC for these private market firms that are doing all their growth in private markets as opposed to IPOing when they're relatively small. Still, the mathematical principle behind VC is also completely different from the mathematical principle behind, for instance, like index investing. I know it's not literally different quantum, but like, give me a second here. In index investing you're expecting a sort of a wide distribution of returns, right? Some companies are going to do really well, some companies are going to do fine, some companies are going to do really poorly. And, and you're trying to get exposure to that wide distribution and sort of take the median outcome. It's not literally median, it's market cap weighted. But you're trying to just take the basket, but there's a bunch of different returns in that basket. In vc historically, the way it's worked is completely different. It's like there's one company in your portfolio that does really well, you know, maybe a few, but you're betting on 100 companies and fully expecting 90 plus percent of them to be essentially worthless, right? But because the return, because you're so early, the returns from those one or two early companies are so, so important for your overall return. Like they're so high that it works, right? Like the, the losses on those 90 plus companies are fine. It doesn't matter. You only lost a small amount because you were in very early, they didn't need that much capital. And the returns for those, those winners were so big that it offsets and you turn what looks like a complete disaster in terms of the average into, you know, weighted by returns. Actually a pretty good outcome. You know, you can outperform public markets sometimes or you can perform very well, whatever. The thing is, if you're constantly investing later and later in the life cycle, you don't get the same mathematical properties from these funds, right? Like it, you're no longer betting on one or two companies to do well. You're betting in a way that looks a lot more like an, like a public market index fund. And that also means that if this particular, you know, if these, if this particular investment blows up a ton of vintages, it's also an indication that the way that VCs are aggregating risk to create return is kind of broken as well. And that's almost as big of an issue as oh, we had a, we had a vintage that was, that was weak or we had a number of vintages that were pretty weak. It's like, why would we give you the, why would we give you the, this capital when the engine of your returns is no longer doing what it's supposed to do? So I think that's like an overlay on top of everything Quantin said, which is all absolutely correct, as is almost everything Quantin says, wow. Except about interior design.
• 26:19
  Eric: I think it's also important to note is that that kind of handoff, like historically there was always a deal and this is all, you know, interrelated is that the deal was that early VC took the big portion of the risk and they got the, you know, ramp up in growth and maybe showing some signs of profitability. And then, you know, kind of the, the, the, the later stage of, of, you know, this, this hot growing company going into a full, you know, behemoth was that was, they handed it off to Wall street and that was, that was the deal with the IPO is that you could buy in, you could buy in it on Facebook, which was at the time, in 2012, like this monster IPO. I think it, I think the first day valuation was around 100 billion, you know, and it's, it's since you know, gone up eight, eight fold is that, that was kind of the deal. And so this, this changes that dynamic. But I think there's a, there's, there's a portion that happened earlier and, and it's, it's that if you look at, you know, we talk about VC funds as if they're this kind of, you know, distinct separate entity, but it's actually like really, it's really interesting because Fidelity in particular and there's a few other mutual funds he's actively, you know, traded mutual funds that, that benchmark themselves against either, you know, blue chips, kind of like A S P 500. Like, you know, Fidelity has a bunch of very large funds that have been participating in, in SpaceX and, and they're in anthropic, they're in all these other very large vcs, you know, privates. And so they've, they've actually been benchmarking their own returns based on these private market write ups. I don't know how that dynamic will play out. Like essentially what we're seeing occur is kind of unprecedented. And I don't, I think anyone that says like, right. I think most people, you know, myself, who's like a big hater and included is like, we think that like you know, day one of the ipo, like it probably should go up. Everyone kind of assumes that. I think the long term capital returns, you know, it's, it's ugly. But yeah, I think there's that the nature of VC and how it interfaces with Walmart, sorry Walmart, Wall street has changed significantly over time.
• 28:24
  Quantian: Yeah. And it's not just vc. There's a lot of other funds that have not traditionally been involved in VC that are sort of like starting to branch out into it. So you've got a lot of these, you know, in addition to the big mutual funds like Eric mentioned, you also have like a big. Hedge funds are increasingly starting to, to be sort of late stage investors. They don't usually do this super early stuff, but they'll do these deals where it's like, hey, we know you're going to IPO in 12 to 24 months. So we'll give you this like bridge loan through IPO where we expect to basically like double our money. You got to pay us back way higher. And so it's non dilutive financing in that sense. And so it's sort of attractive to These Ubers and SpaceXes and anthropics of the world where they don't have to go out and raise equity, but they can still get new capital at pretty favorable terms to them and pretty favorable terms to the hedge fund. So it's started to branch out and more and more people who have not traditionally bin VC investors are kind of dipping their beak in as it were.
• 29:30
  Ed: That's happening on a lot smaller companies too. I've worked for several who have been like good news, we got a bridge loan. And I'm not quite sure that's what it means. But yeah, it's been going on for the last five, six years at least.
• 29:45
  Propter: I'm going to ask a series of stupid questions here which, which may take you out of order on, on the way you wanted to go. So please stop me, back me off if I'm, if I, if I am taking this out of order. So the story we're telling here is that SpaceX is existential for, for the VC industry because it's become structurally embedded in the way they've done things in past. There are lots of these vintages that need the SpaceX IPO to go well because it is a significant part of what they need to display as, as winners for those particular vintages. And this is already entirely baked in. There's no other normal way to shove new things into these old vintages.
• 30:25
  Quantian: Yes, it's completely impossible. This is their only shot at these old vintages. Now for newer vintages, for stuff that's like 2020 and older, you might have OpenAI or anthropic. So you've got kind of other shots on the goal if this doesn't work. But you know that whole sort of pre Covid set is entirely dependent on SpaceX and there's really nothing you can do to improve returns if this does not go essentially perfectly.
• 30:51
  Propter: Here's my, here's my follow up question that. So SpaceX did something to change that math, right? Like SpaceX used to be a space company and now by, by acquiring xai they put themselves in other markets which, correct me if I'm wrong, in their own, in, in their own S1, in their own hype book here they are saying that their future growth will primarily come from things that are in these other markets that they're playing in that are in. I think it was robotics that's driving the forward revenue expectations that are eye popping.
• 31:25
  Quantian: Is that main. So it's actually very funny because they do, everybody sort of talked about, oh, they have like a TAM that's bigger than the entire U.S. economy. They're talking about, you know, $28 trillion worth of future revenue. And if you actually look at what makes up that number, less than 10% is like all of the space stuff, 90% is what they call business productivity. So they're literally saying we are SpaceX, we are going to extend the light of consciousness to the stars and we're going to make our money by being Microsoft Excel 2.0 in their own document. Which is pretty funny. But I would say the robotics story, that's really more of like a Tesla thing. The big kind of pump that SpaceX is talking about now in order to, you know, to get people really excited is this idea of like space data centers, which is, you know, we're gonna, we're gonna be putting these Nvidia GPUs on racks on satellites. We're gonna launch them into space, they're gonna have free solar power. And that's, we're not gonna need to build data centers on Earth anymore because we're gonna put all of the data centers in space. So I think there's a whole bunch of stuff you can talk about about why that's a very stupid idea and I'm sure we will get into that. But, but probably if you Talk to a SpaceX bull on Twitter, they will bring up space data centers nine times out of 10. That is really the story for why they're going to grow revenue by 50 or 100 times to justify this investment at the current valuations.
• 32:53
  Eric: So just to chime in there, it's really important to understand that when you're ipoing so right now you've got a consortium of, of invest. Of investor banks. Like it's basically every single investment bank that is worth anything is, is listed on this. And so they, they get a portion, they get a, they get a fee. And usually you get a, you get an allocation in common shares as, as your underwriting fees, what we call it. It's just like a, you get a cut for, for doing all the legal paperwork for, for you know, providing the financial means to access the markets to smooth out the transition of the shares. The leader on this one is Goldman Sachs. And it's really important to note that you know, you know, people talk about finance as if it's, you know, fraud or not fraud, whether it's real or not real. But you know, you know, we've got Goldman, JP Morgan, you know, literally any big one you can name is going to be on here, Morgan Stanley in particular too, is that, you know, when they do this, they, they can't just like say, oh, you know, we think XYZ is going to be worth a quadrillion dollars if they can kind of ground it to like a known. It's, it's like if you're in like, you know, engineering or kind of really any other, like, you know, a certified professional body, like you have an expert that says, hey, yeah, I think that this, you know, based on my interpretation, here's what this could be, right? Here's the potential range of outcomes. And so kind of going back to the, the TAM being this kind of mystery box is that, you know, Goldman can't. Goldman. And again, all the underwriters, they can't go in with a good conscience. And I'll get into what that means. They can't go in and just say, oh sure, the space, the space, the launch business and the Internet service business are going to be worth, you know, half of that tam. And because you, because you can't do that and reconcile it with other entities in the market and kind of two witnesses, you know, Lockheed Martin has a market capitalization of $122 million billion dollars. That's on, that's on $75 billion of annualized revenue. A 1.6 revenue multiple. At T is 172 billion dollar market cap on 125 billion in annual revenues, a 1.4 multiple. And so goal Goldman. I'm just, I'm just gonna say Goldman. So your underwriters can't just say, oh, you know, we're applying previous multiples. We're going to have this huge TAM for these other things. Because what happens if, if investors feel like they were defrauded as part of raising, you know, the, the capital they're going to, for the ipo, it's really easy to go back and say, hey, look, you said that, you know, Internet service is going to be this huge thing, but like your other documentation and your other research shows that you really don't actually think that for, for, for, you know, something like Internet service, because we know what that is and we know what people will pay for it. And so what they have to do is that this is kind of, you know, you, you create a mystery black box which is well accepted in the market, is that they're, hey, you know, we're going to have all these multiplicative effects of AI and of productivity and we're entering a new golden age. And instead of saying like, hey, it's going to be an Internet service provider, they're saying, hey, they're, they have interfaces with all these things. So it's going to go into magic, you know, productivity. We'll all be, you know, living, you know, space, space people having robot AIs, you know, mine, the, the, the stars of, for, for minerals or whatever. Like that's a thing that they can. It sounds crazy because it is like, fantastical, but at least it's, it's something you can say, hey, look, this is something that everyone, we don't know what the future looks like. And so that's, that's kind of the reason that they, you know, have to come up with these buckets. It's not because Elon or anyone who works at SpaceX, like, really believes that those enterprises are going to be that much, is that you have evaluation and we're sitting there and we can't write down that valuation. And the underwriters need to make sure that what they've put out there is not actively misleading you. You leave the parts up to mystery that you say, hey, look, investors were warned that, you know, you're, you're speculating in something that is futuristic, not just a glorified Internet service provider and launch provider.
• 37:15
  Quantian: Yeah. So another thing I would add is all of these S1s, you know, they're legal documents. And so they have to have like this huge, long, detailed segment on risk factors where they basically say, this is everything that could possibly go wrong with this. So if one of these things does go wrong, you're not allowed to sue us because we literally said in like, bold text that something, something could go wrong. And so if you look at like the number of disclosures that the SpaceX IPO makes, it's insane. They have like, pages and pages of like, risk factors and disclaimers specifically to cover their ass for anything that could possibly go wrong. Yeah, I'll just make up things on the S1. That's fine. That's what they did, too. So.
• 38:05
  Eric: Also, sorry, tam, that is total addressable market.
• 38:10
  Quantian: Yeah, that's sort of, if they're successful, that's like all of the money they could make, theoretically.
• 38:16
  George: And it refers to revenue, not profit.
• 38:18
  Quantian: Just so it's worth. Yeah,
• 38:22
  Propter: okay. So what I'm taking away from that is that if it wasn't, you know, the Xai story. There would be some other thing that, that takes that place in the S1 as this is the pixie dust that gets us to this valuation. This is our plausible story that we're telling. Maybe it's going to work out some other way, but that's fine. Everybody understands that maybe it's going to work out some other way instead.
• 38:48
  Quantian: Yeah. It's worth pointing out that the valuation increase that we've seen happened almost entirely in the past, like, six months. So every year they basically carry out these tender offers to sort of buy shares from employees and, and provide liquidity. And so they come up with a valuation based on paper for like, hey, this is what we're going to buy your shares at this year, if you've got to sell to buy a house or whatever. And so at the end of last year, that valuation was around 400 billion. And so 400 billion is obviously a lot of money. But they didn't have the AI business. They didn't have Twitter. They basically just had Starlink and the launch business. And that was on the outer end of expensive. But, but, you know, it would have been like, you know, 11 or 12 times revenue. And they have basically increased their market cap by a factor of five since then with this merger. And the merger has, like, materially hurt their financials because Xai lost a massive, massive amount of money.
• 39:46
  George: And that's what I was referring to in the financials, you know, earlier on when I gave the quick overview. Right. Like, they've gone from a business that's throwing off not zero cash, but it's not burning that much cash and it's producing a decent amount of revenue to a business that's basically not even earning any revenue and is costing absolutely ungodly amounts of money to invest in.
• 40:07
  Eric: Yeah, I was going to say, is. Is like, who is using X? I. I mean, is. Is the Twitter user that big? No, I mean, it is. It is literally Twitter users. I'm pretty sure that's 90% of.
• 40:20
  George: There is another market for it. The investment banks that pitched the IPO were required to buy subscriptions. And I am not exaggerating. That's a publicly reported fact.
• 40:30
  Ed: Yeah.
• 40:31
  Eric: Okay, so you pay your. It's a bunch of guys paying eight bucks a month, seemingly, to just undress
• 40:38
  Quantian: women on X, the Everything app. And that is the AI business for them.
• 40:44
  Ed: Well, everyone, everyone who has a cloud subscription is now also forking over a wheelbarrow of money, so that's nice.
• 40:50
  George: Well, we should, we should get into the details of what the ED is talking about there. So basically Claude Anthropic has seen a massive increase in appeal for a bunch of reasons. And they're very compute constrained. So anthropic, unlike OpenAI, didn't go out and say, okay, let's build a ton of data centers, or XAI for that matter. Right? They didn't say let's go build a ton of data centers. They said, we'll just buy compute from people when we need it. There are some ups and downs to this strategy, but eventually you get a ton of growth and oh shoot, we got to go buy a ton of compute. Well, so Elon in all his genius had built these Colossus data centers. There's two of them, right? Colossus 1 and 2. Eric, am I right on that?
• 41:27
  Eric: Yeah, there's. There, they're in the original ones in Memphis at an old like, like Electrolux plant, I believe. Yeah, Electrolux, that's right. And then the other one is in South Haven, which is just. If you go south to Mississippi, it's a, it's like at the, at the border. It's in the very, very northern. It's like essentially it's extended suburb of Memphis, but it is in Mississippi.
• 41:51
  George: So basically Elon was like, oh well, Sam Altman, that OpenAI is building all these data centers. I got to do the same thing. Except they built way more capacity than the X users who are using this or Twitter users who are using this to undress women could possibly use. And so they have a bunch of Nvidia, you know, top of the line Nvidia GPUs sitting around with all the power they need to run, thanks to some really, really horrible local side effects, including all sorts of air pollution, noise pollution, et cetera. Like all the bad data center memes, like those are actually true about the Colossus Data Center.
• 42:25
  Eric: Yeah, the Colossus data centers, to be clear, are like inactive and, and knowing and wanton violation of the Clean Air Act. I mean, it's, it's, it's actually, I mean like this is, I did, I did this stuff for years. It's, it's crazy to me. Like this would. You know, I've worked for some of the worst petrochemical companies that people hate. And like I, I would have, like we would have never tried to get away with this. And actually regulators, I live in Texas now and I can tell you, Texas regulators, if I tried to like submit some of the paperwork I've seen, like they would have, they would have kicked my door down and like thrown me in jail for like lying on paperwork. So that's my, that's my opinion of it.
• 43:03
  George: So just so, so that is part of the capex that Elon has done in Space X, you know, because it's now rolled all up into the same company. So XAI did this and now SpaceX has bought Xai so etc. So they have all this COMPUTE sitting around doing nothing. I mean I think is probably what it was doing up until this month when they sold a bunch of capacity to Anthropic because Anthropic is compute constrained Now Anthropic doesn't have to use this capacity forever. I think the contract lasts five years if I remember correctly. But there's a 90 day cancellation policy from at any time so they can walk away from it whenever they want. But that's going to create some revenue growth for Xai specifically for the AI business because they built all this expensive CapEx to service their foundation model and then no one wanted the foundation model because it sucked basically. And now they're having to rent it out to somebody and yet they are still somehow going to provide, you know, massive upside by this $200 trillion total addressable market in AI services or whatever. The. That's not the actual number but it, I'll let Quantrin or Eric correct me on that. But it's you know, some absurd number like that and you know, when in reality what they're doing is oh, we built more than we needed and so now we have to rent it out to somebody at a wa. A way lower return on capital. So I like the whole thing is just, is just nuts. But you know, to bring it back to Ed's. Correct or Ed's original comment that started this off. Yes, like Anthropic now is providing COMPUTE based on their contract with OpenAI. I don't know if they'll keep it around long term or if they're just keeping it around as a bridge to getting more capacity from someone else.
• 44:43
  Propter: I mean to be clear, last time, last time I looked at the colossus one point they were either now connected to the TVA grid or about to be connected to the TVA grid, which is the good news. They're no longer running off of these.
• 44:53
  Eric: No, they still are. It's both.
• 44:54
  Propter: Okay, so they also still have these, these, these portable natural gas burners on site that are, that are helping fuel it in diesel.
• 45:02
  Ed: As I understand it though, maybe that.
• 45:04
  Eric: No, no, no, they probably have some services on backup diesel power. But no, it Is all.
• 45:11
  Ed: Okay, so it's not active.
• 45:12
  Eric: Okay, it is not.
• 45:13
  Propter: And the bad news is that TVA has approved a plan to keep coal online for longer to service the additional demand from Colossus 1. So like there's something for everyone there that they're, they're, they're trying to transition away from these horrifically regular regulatory problematic portable natural gas generators. But what they're going to is arguably even worse because it's keeping some fairly heavily polluting coal plants online for longer in their life cycle than they would otherwise be online.
• 45:43
  Ed: Right.
• 45:44
  George: Just so folks understand what we're talking about there in terms of portable natural gas generators like a natural gas turbine. We've talked about this actually on this podcast before. But a natural gas turbine is basically a jet engine and you can use these things in a bunch of different ways. The best way to use a natural gas turbine is through a combined cycle process where you're capturing the exhaust and using all the waste heat. That's a CCGT that is probably the single most important baseload on the US grid at this point. They're very expensive, take forever to build and very, very complicated. So, so you know the easier way to use a gas turbine is to use it for short runs to sort of get you through the peak load in a given day or season. And it's basically a jet engine pointed at the ground and you are generating all of the emissions that you would expect from a jet engine. But it's just running in place now for peaker plants on the grid that do this. It's not the end of the world necessarily for local air quality because they're not running 24 7. They're specifically designed to run for very short periods of time. That is not what's going on in Colossus. They are just running jet turbines, turbines constantly in a major metropolitan area with all the emissions that come with that and the noise, pollution, etc. It's really awful. I mean there's just no other way to put it.
• 46:57
  Eric: Yeah. And I think so. I think there's, there's two things there is that is that the emissions that are ongoing there is some time of day. So your, your emissions from combustion like of knocks from these turbines, you know, nitro nitrogen, nitrogen oxides, it's a side effect when you mix nitrogen from the atmosphere with the combustion and it goes out there. It, it, there's a photochemical reaction that takes place and, and generates what's called ground level ozone which is correlated to asthma, cancer, all sorts of health Issues. And that is actually a time of day one in that, you know, if you live in like a, you know, a smog alert city, if you live in Salt Lake City or LA or, you know, Houston, where I live, for people that know these smog warnings, like part of that is ozone and it isn't, it is like it gets really dangerous. Kind of like a dosage thing. Like you, when, when the atmospheric conditions are right and when, and when it's light out, you get these huge spikes. And so Peaker plants tend to not. I know they've been using turbines more, but turbines are kind of not that great. Turbines have a ton of extra emissions. When you switch between, you know, zero load, they're not spinning. To spin them up, you have to generate a bunch of extra emissions. But because the central shafts of a, of a turbine spin, you know, they rotate, you know, they're very efficient, but only at, you know, set loads. And so peakers are all sorts of things. Batteries are great use for peakers, but they, they tend to be reciprocating engines. Because if you've ever driven a car, there's a reason there's not a turn turbine in the car. You can turn it on, it's not as efficient, but you can get it from 0 to 100%.
• 48:37
  George: Actually, you say that you tend not to have a turbine in the car, but I saw on TikTok last night a guy who put a auxiliary power unit from an airliner into the rear seat of an Audi to use as a turbo. And so they are out there.
• 48:54
  Ed: I mean, Chrysler sold one in the 60s.
• 48:57
  Eric: We did, yes.
• 48:59
  Quantian: Least problematic Audi driver.
• 49:03
  Ed: Thanks, Jay Leno.
• 49:04
  George: In any event, the, the, the Colossus data centers are a mess and Claude is now renting them is the way to. Or Anthropic is now renting them from Xai. That'll, that'll make Xai's financials look significantly less. Well, you know, 1.5 billion a month, 1.25 billion a month less bad than they otherwise would because they're now earning revenue that they were never earning before on asset. That was wildly underutilized. So it'll help. But I mean the scale of this company is so large and the losses are so enormous and the Capex is so high that it doesn't actually matter. It's not like, oh, that turns it into a good investment. No, not what's going on there.
• 49:50
  Propter: And yet at the same time, that's a significant piece of their total revenue. Correct. Like the, and we were talking about what we were talking about 18, 18 billion in revenue previously.
• 49:57
  Quantian: So it goes from 18, so it almost doubles their revenue. So this would be like 40% of revenue on a run rate basis going forward.
• 50:05
  Propter: I mean, look at that growth, which
• 50:07
  George: again keep in mind, like I said earlier, this contract is fully cancelable with no penalties on Anthropic's part on a 90 day notice. So that could go away at any time, which is amazing. The other thing is it's worth talking about the underlying business of Starlink and the underlying business of launches because I think, you know, Eric, I'm going to appeal to you here because there is a real business there at some valuation. But the unit economics of the launch business specifically, like if you just look at the launch business, the unit economics suck and they don't look like they're going to get a lot better. So can you sort of walk us through like, like how the unit economics work on, on just the launch business without getting into Starlink, which we can definitely talk about as well.
• 50:53
  Eric: Well, so just, just to, just to preclude that, it is important to note that because like if you, if Starlink was an independent business that was contracting launch from someone else, I think you could more confidently say that the Starlink business by itself is good. But because, you know, you know, commercial customer for SpaceX I think pays for their, you know, rocket, you know, their, their workhorse rocket, the Falcon 9. They pay something like, I think it's like 60 million a launch that gives you a lot of wiggle room to move between different buckets if you're doing internal transactions. And I suspect what is going on is that the launch business is probably like a 15% EBITDA business. And right now it's, it's presenting the space business which includes services for NASA is like, basically it's, it's, it's a negative EBITDA business. And so I think some of that is, this is, this is entirely speculation but, but that is, that is moving stuff around in buckets and that's. Yeah. And so just, just to put that out there. So, you know, I think it's really important to like, it's really important to know physics and I think, you know, I don't want to get, you know, too much into the weeds, but it
• 52:03
  George: is here first folks.
• 52:05
  Eric: It's, I mean it's really, and I think this is the ultimate irony that like makes me laugh every time I think about it is that if you look at any other form of transit, so if you've got a truck Right. So if you, if I'm delivering stuff cross country in, in my Honda Civic, that's obviously terrible unit economics, not only because you have one driver, but also just because of the efficiency of how friction works on the ground. And so everyone understands I think kind of on a fundamental level that you size things up into a trailer and you get to a point with the trailer is that in the US there's like a limit of a, of a normal semi. It could be up to, I think it's like 80,000,000 pounds. And what that is, is that that limit is not based on like thermodynamics or fuel return. You could actually just keep making trucks bigger. It's that at some point trucks start just tearing apart the road and then the externalities of, of the force you've now of friction that you've placed on the ground makes it so that you, you've spread the cost out to someone else. And, and that would change the dynamic. But effectively trains for, for example, that are on, you know, fixed steel that do not, that aren't, that don't, don't warp and, and shred. Like, like roads do. Like there's, you don't want to say infinite, but like trains just keep getting more and more efficient. Which is why when you're sitting at a, at a, at a stoplight or at a railroad crossing and you'll see just hundreds of cars is that, that's just the simple way that friction works. That there's, there's a high amount of friction to get started, but then once you start rolling that, that kinetic friction makes it so that you can just scale up. You, you use more fuel, but you get more and more mass efficiencies. And so likewise that's why, that's why, you know, ocean freight, for example, is, is so large. Even, even airline freight to an extent is actually true because the force of, of travel, you're, you're going, you're going parallel to where gravity is pushing you down. And so there's some, there's some kind of upper limit that's mostly based on material science. But like in theory, if you could make different materials, like you could make jets bigger and bigger, much bigger than kind of your seven triple 7s or 747s and, and get some efficiency out of there. So the reason I bring that up is that there's this kind of intuition that people think like, hey, as you get bigger, we understand this intuitively. Freight bigger, more efficient, you have fixed costs are set and then you just have more fuel that goes in a larger and larger box rockets. And this is a known thing. It's called the ideal rocket equation. It was based off of some, some Russian Tsiolkovsky physicists actually in the, the early, the early, early, like I think into the, into the 19th century, people like maybe it was like early 20th century. Basically what happens is when you shoot a rocket into space, you're not going, you're not going, you know, cross gravity. Every single thing you're going directly up, you're going directly opposite to the force vector of gravity. And so what that means is that to some extent you have a fixed cost of a rocket so that the shell and body of a rocket, all the equipment that goes into it and the payload and there's some scalar efficiency and then the rest is going to be fuel. And this is really important because it turns out that as you get bigger than about what SpaceX's workhorse rocket is the, the Falcon 9, every incremental pound of, of payload that you want to put into orbit, whether that's low orbit or it's into, you know, you know, a, a, like a Hubble telescope or a Webb telescope type launch that every single incremental pound of, of of payload you put into orbit is going to use exponentially more fuel by mass. And so it actually has negative scale. It has exponentially negative scale beyond a certain point. And so I think people like really don't understand this. And, and so what SpaceX has is they've got basically the most effective rocket program in history. Like truly the Falcon 9 program is in the sweet spot. It runs like a machine. They have part of the, the first stage booster is reusable. It's a very good and reliable platform. And we've seen kind of this talk like oh, we're going to keep getting, you know, like basically the, the starship, the one that they're testing down in Texas, is that the pitch is that they don't, it's not that they don't pretend that this, this, this rocket equation or these, these physics aren't real, is that they say that what the starship is going to be is, is in order to get, you know, I think it's like in order to get about five, five times as much mass to orbit as an existing Falcon rocket, will you have to use 10 to 20 times as much fuel? And so what they're saying.
• 57:11
  Ed: Yeah, yeah.
• 57:12
  Eric: And so what, what, what they're saying is that like, no, so we're going to reuse the whole thing so the Falcon 9 rocket only if you, if people have seen the boosters landing, it's only the first stage. The rest of it is not reusable. What they're saying is that no, we're going to take both parts of the rocket, the big booster and the starship, and it's going to be, we're going to be able to just launch these things off these, these massive rockets. Again, you know, to, for comparison, the amount of fuel in a starship is like 80% more than the, the new Glenn explosion we saw just this past, this, just this past weekend or just this past week. It's like you know, 80 more fuel that's going into this thing and it's the same type of fuel. And so there, there, the pitch is that we're going to take this thing off and it's gonna, it's gonna, it's gonna take a bunch of these starlinks or data centers and then we're gonna be able to land them both. And just like it's a 747 or something, we're going to fill them back up, stack them back together, put a new payload in there and just keep shooting these things off over and over again. And even with that assumption, like, I don't think the mass works anyway, but they're saying we're going to use cheaper materials, we're going to use stainless steel and we're going to brute force past these like very real restraints based on like gravitational force. And it's really fascinating because it's just like, like the, the, the idea of being able to turn, turn it around is like effectively impossible. But like, just like when we know about forces of, you know, wind resistant, how much force you're having to throw out the other end of the rocket. Like you're creating so much stress on a vehicle. And so to compare it to an airliner or, or a train or any other sort of other like bulk transit, it just simply, it defies what we know about both material science. And then really you're, you're, you're playing at the edges of what even like, you know, true SpaceX booster will say. Like they're going to have to admit that the ideal rocket equation is real. And so that's like an important part is that SpaceX has had a larger vessel, the Falcon Heavy, which is a different configuration. They've had it for years. And the pitch before that came out was, oh, it's going to, it's going to decrease our, your, your net cost per pound to orbit versus Falcon 9. And sure enough that thing launches a few times a year for larger payloads and is not used internally by SpaceX. And so you have to believe that this like Starlink system is going to be able to put all these Starlink units, these larger next generation Starlink units to be able to kind of get that unit level profitability. It's all there in the S1. They've been saying it forever. And so really even like the dream of Starlink is based on this like very kind of insanely optimistic and probably childlike understanding of what a rocket can do both logistically and also kind of what you can do like an engineering and physics. And so there's like just on a really granular level that part is like, it's nuts. And, and I think it's, you know, before, you know, we talk, I could talk about unit economics to the extent I understand, but I think it's really understood, important to get this like conceptually is that Starlink works great. If anyone's, you know, it's like I, I, I'm a pretty regular flare on United. It's amazing service. But, but the satellites, because they have such low ping, because they're so fast, they have to be very close to orbit. And so they're constantly being dragged down by all sorts of forces. And so the, the, the lifespan of something that's that close in what we call very low Earth orbit or you know, V Leo or Eliot know, is that you can only keep them up in space, you know, where they are, for about five years at most. And I think it's probably closer to three and a half, four years really as we see this. And so that churn of, of, of capital, of, of launching rockets, forget building the satellites, you're gonna have to constantly churn these things out. And as you grow, as your fleet gets bigger, you're gonna have to, every four to five years you're gonna have to keep pumping these bad boys into, into space. So the churn, the capital churn there is nuts. And it's nothing like your AT and ts. Where like as I gave for example before, is that like, you know, an AT&T or a Comcast, you're going to put a fiber optic cable in the ground or under the ocean and it's going to be there working for 50 years, 100, the capital turn on. This is just, it's crazy and it doesn't make sense to me. And so like any sort of top line growth you have assumed in anything they're doing in orbit, you have to say I'm gonna have to do an entire capital replacement. There's some on ground equipment, but most of my capital is going to have to get churned. I'm just tearing this stuff up after three, four, five years.
• 1:01:51
  Quantian: Yeah.
• 1:01:52
  Ed: Like there's a few things that I think a lot of people don't realize there, which is that like Starlink is essentially in atmosphere. Right. Like Starlink satellites are, are experiencing atmospheric drag. It's not like, you know, it's not, it's not like, like just a gravitational thing, like they, they dispose. Something like what, one to five a day? Something like that.
• 1:02:12
  Quantian: Yeah.
• 1:02:13
  Ed: Which is just crazy. Right. And the Falcon Heavy stuff you mentioned, like correct me on this but like, because like I, I don't keep up on that as much as I used to. But like the last two launches were NASA and then like the next one in September is, is NASA. They can't seem to be getting anyone to just like pay the money for the thing. No.
• 1:02:36
  Eric: And that's not their fault. Like, it's not their fault. And the reason is, is because it's more expensive, right? Because of. Yeah, because of mo over mf.
• 1:02:45
  Quantian: Yeah.
• 1:02:46
  Eric: Yeah. And so it's, it's there. So it's, it's very useful for things you want to shoot a long ways away. You want to make sure you've got initial escape velocity or things that are very heavy, which are not going to
• 1:02:58
  Ed: generally be super commercial things, at least right now.
• 1:03:01
  Quantian: Yeah, yeah.
• 1:03:02
  Eric: And so if you could fit more. Right. So if, if it was true that the Falcon Heavy was more efficient, which again, they're, they're like people still share and it's, it's maddening to me. People still share like infographics from like, you know, the, the 2018, 2019 period of what the projections were going to be for Falcon Heavy. If that was true and SpaceX is consuming, you know, 70% of launch capacity internally, then why would they just not put more Starlinks on a Falcon Heavy? And it's just, it simply is like, it's, it's falsifiably not true because you only save these heavier launches because they're more expensive from tip to tail and fuel use, all that stuff. It is more expensive. So you want to, if you have a very large single payload, you can't divide into multiple smaller payloads. Like you're going to need to pay for the big heavy rocket and there,
• 1:03:54
  George: there should be an industry for that. Right? Like we, we want to send stuff outside of low earth orbit. We want to send, you know, whether it's scientific stuff, whether it's, I mean even doing the groundwork for an extra orbital permanent human presence like there, that, that should be a market but like it's niche as hell, man.
• 1:04:12
  Eric: I mean it's a market in the
• 1:04:13
  Ed: sense that a government can do it, but like.
• 1:04:16
  George: Right, exactly.
• 1:04:18
  Eric: Is that, that's why it's only a part of like Lockheed's business. Right. So that's why ULA United Launch alliance was a baki, a Boeing and Lockheed joint venture. Because it's not a great business. Like you're, it's going to be cyclical, it's dependent on the whims of political factors and it's going to be 15 EBITDA business. Like it's just not, it's, it's not, it's not not, it's not a fake business. And one more thing I wanted to point out though is, is that the, the Starlink service, if you think about it like, you know, if you've seen the pitches for Starlink is like in something like 95 to 98% of Americans have access to high speed Internet. That's terrestrial, that's you know, cable, fiber optic, all that good stuff. We already have access to it. It's already cheaper because we're not having to, you know, recycle satellites every five years. The people that, that do, you know, van life, people that live in rural areas, like it is absolutely worth it. If I lived in a rural area and I didn't have access to terrestrial, like, like they're charging like a hundred dollars a month or something like that, like I'd pay 200 for that. So like there's real value there. It's just that TAM is tiny and they're going into these markets and like they, they like they've had to do deals with, I think Vietnam to be like, oh, we're going to commit to spend this much. But if you look at Vietnam, the number, number of people that can afford $100 that don't have access to high speed Internet, it's like a handful.
• 1:05:42
  George: Well, and this is explicitly disclosed in their S1, right. They talk about large declines in average revenue per user for Starlink because they're entering lower price markets. And the reason they're lower price is because the people can't pay what a US consumer can pay for connectivity. And it doesn't mean that their unit economics are negative at that point, but it's, you know, at the margin it's a huge hit. Right. And the Satellite costs remain the same. It's not we with if, if you're running a 30 year life asset like the phone company operates, right. Whether it's, you know, they're, they're fiber optic cables, I think that'll probably do half a century or longer. Right. You can add incremental users at much lower price points and still get a good return on capital because the cost of that asset depreciating like the, the, the value of the asset declining over time is so small. But if you're having to relaunch at substantially the same price you did three years ago to replace and replenish that capital stock all the time, there is just no way that you can make that work if your revenues per user are ever lower, ever lower because you're pushing into lower and lower income markets around the world. And again, it's great for those markets that get access to that, that connectivity. But either you have to do it at such a low price point that the unit economics disappear or you have to do it at a price point where the unit economics works, but the total addressable market is much, much, much smaller.
• 1:07:12
  Eric: Yeah.
• 1:07:12
  George: And it's one or the other.
• 1:07:14
  Ed: There's another issue on top when you get into Starlink because Starlink has density problems, right? Like Starlink can only serve so many subscribers in a given area just because like there's only so much bandwidth on the, on, on the spectrum. This is one of the reasons you don't see and, and a rare disclaimer here, but I work for the phone company, but I don't work on this side. So this is all public stuff. But you don't see nearly as much of that out of the terrestrial telcos, even the ones that are expanding into it, just because it ends up just choking out if you get too popular.
• 1:07:49
  Eric: Right. And I think kind of just so that we're being fair and balanced here is that I think the most, the most, the most profitable and kind of compelling portion of the business is that, you know, commercial service and then the government service. So for example, when I'm on a United flight and they're, they're in the process of like switching over their WI fi. Like I love it when Starlink is on my flight because it is like it is close to, it's like hotel WI fi, maybe even sometimes even a little bit better. Like it's, it's like the premium tier of hotel WI fi on a flight. It's amazing.
• 1:08:24
  Propter: And like in, like, particularly in Ukraine we've seen that Starlink has Battlefield applications that are not easily replicable by, you know, anything short of a whole bunch of fiber optic spools. So like that's, that's a big deal too.
• 1:08:36
  Eric: That, no, then that's, that is actually the juiciest portion is that if you think about like, so the appeal of Starlink is that low ping and like, if you think about like, hey, we were providing services to Ukraine for these like unmanned drones. Like, like, like for an incremental, you know, you know, kilobyte of data per second or whatever it is, you know, to man these drones. I think it's significant can be significantly more if you've got video like for the, for, for that, you know, level of demand. The, like, you'll pay like, I don't want to say an infinite amount of dollars. But if you can have a, if the difference between like a successful, you know, precise, you know, a drone mission hit or miss is having access to high speed Internet, you'll pay a million dollars for that one mission. So like the incremental appeal of those, of that bandwidth is like absolutely compelling. But again you're kind of getting to that same problem of launching very large rockets for the government is that like, yes, the US Government has a lot of budget but they're not going to be spending, you know, $100 billion a year on Starlink or whatever it is. Like you're going to be, it's going to be a nice one billion dollar, one to two billion dollar maybe top line. And the U.S. government demands, you know, their own satellite networks. You have to, you have to make it a bespoke constellation for them. That is a nice business. It's just not one that you're going to be able to, you know, make up some bullshit tam over that starts
• 1:09:58
  Ed: getting you into some other issues with, with SpaceX too. Because like it, it's not just that like SpaceX is, is a business selling things to the government. They are a military contractor. And at that point every, everyone on, on the Everything app loves to talk about the unparalleled genius of Elon Musk. But if any military contractor CEO acted like him, I do not think they would retain their contracts.
• 1:10:27
  George: Oh, have you met the CEO of Palantir?
• 1:10:30
  Ed: All right, in a normal distribution environment,
• 1:10:34
  George: George, Although that guy is top of my list for January 17, 2029.
• 1:10:39
  Ed: That's, yeah, yeah, no, I, I, I have some suggestions for number two, but yeah, he, he's up there. But like this is a, like an existential problem for start for like SpaceX as a company as soon as the window closes on the current dipshit parade, right? Like there's, they're going to have to figure something out and it's not going to just be get rid of musk at that point, right. Like that's really bad for future outlook for SpaceX as a whole.
• 1:11:11
  Quantian: I have some news on that front, which is they can't.
• 1:11:14
  George: I think this is a great chance to talk about the governance structure, so why don't you do your magic?
• 1:11:19
  Ed: I was hoping you would get to that.
• 1:11:21
  Quantian: Elon has previously been the CEO of a large public company you may have heard of called Tesla. And it has been obviously very profitable for him, but it's also been an enormous source of headaches because he keeps getting sued for doing like blatantly illegal and uncontracted actual things and he will often lose. And you know, so he has spent a lot of time trying to chase back and forth to get his options pay package reinstated. He's had to reincorporate the company out of Delaware. I think he's lost some shareholder votes at various points. And so now, and you can't have that, you know, you can't. So he has basically rejiggered the entire governance structure of SpaceX to ensure that he is the God king of this company for the rest of his natural life and cannot possibly be removed for any reasons. So it has a dual class structure which, and Eric, please correct me if I'm wrong, I don't think Tesla has a dual class structure. I think it is single class.
• 1:12:20
  Eric: They do not.
• 1:12:21
  Quantian: Yes. And it is not no longer incorporated in Delaware. He has reincorporated it in Texas as what he believes to be a more politically friendly jurisdiction, both from sort of the, the kind of the top line laws as written, but also in terms of his ability to twist arms and kind of manipulate state politics because he's such a huge taxpayer there and he's so politically influential both in right wing politics and kind of as a business entity in Texas proper. So he owns essentially 85% of the voting control of a company. He doesn't really need to own that much because he already owns pretty close to a majority of the shares as is. He owns, I think 44% and he just got a giant pay package of another billion shares that I don't think it gets him over 50, but it gets him really, really close. It gets him to like 48 or 49 in the interim. So he does control the company. It is a controlled company, which means they don't have to have things like an independent board of directors. You know, there's sort of looser regulations on them. They still have to have an independent auditor, but the, the governance structure is basically, look, we know you're in charge, so let's dispense with the fiction of, of having you do all of these things that you would do if you were a normal company. So yeah, he controls a. Almost near majority of the economics, but an absolute majority of the voting shares in control. And in addition to that, I believe there is a separate provision that even if he no longer controls the voting majority of the shares or voting majority of the economics, he still cannot be removed from the chairman position without his own consent.
• 1:14:07
  George: So is that, is that legal?
• 1:14:10
  Quantian: I think, you know, to quote Newt Gunray, we will make it legal.
• 1:14:15
  George: So I'm just wondering if there's ever. I've never even heard of a provision like that. I'd be curious to know if that had been tested at some point. I mean, it won't because for all the reasons you've just outlined with the share. Dual Claire, dual class share structure, but still I, that, that's wild to me that that would be legal.
• 1:14:32
  Eric: And Lipton, who's a law professor, business law professor, has written a pretty, pretty nice post that summarizes all of the legal unknowns and it seems I, I think, I think I actually re. Reposted it on reskated, whatever we call it on Blue Sky. I think I did this morning. I'll send it over to you, George.
• 1:14:53
  Quantian: But yeah, yeah, I think the other interesting thing, and again, I'm hallucinating here, so Eric, correct me if I'm wrong, but if you participate in the ipo, I believe there is a clause where you explicitly waive your ability to bring suit against the company for like, securities fraud. So. Which is also extremely unusual. I don't think I've ever seen that provision before.
• 1:15:17
  Eric: I know that's a new provision and I actually asked Ann, man Lipton, I did ask her whether that would be enforceable in like a federal court in a separate jurisdiction, because not only does it, it requires you. It requires shareholders as part of their bylaws to, to, to go through arbitration similar to what we've seen with some of these, like, you know, signing up for social media services. But then it also says you can't litigate anything outside of Texas courts. And I feels like that's not how federal law works. So I don't know.
• 1:15:48
  George: We'll confirm not, not how separate jurisdictions work. Science is. No, you don't get to just say the magic words and avoid federal court. That, that's pretty well established.
• 1:15:59
  Ed: So on balance, this sounds like a really great company for everyone to have in their retirement accounts.
• 1:16:04
  George: Another segue from my co host, Ed. He's on fire.
• 1:16:10
  Quantian: Folks, I'm going to take a slightly more optimistic view on this, which is so. Yes, see, I think it defaults to me as being like the most pro elon person on the podcast, which is a very uncomfortable place to be. But so a lot of people are talking about this, like, oh, they're going to sort of like force this into the index fund. So the only index fund that we know has sort of for sure changed the rules to permit this has been the Nasdaq. And they have, you know, 2 trillion reasons to do that, which is they really wanted Musk to listen on their exchange. So they were willing, they were willing to bend the rules for him. But you know, the thing about the Nasdaq is it's a comparatively smaller index. There's a lot less money benchmarks to it. And so they change the rules to make it like slightly more appealing. But there's not going to be some sort of like massive ocean of NASDAQ money that's going to like double or triple the stock in the short term.
• 1:17:13
  George: There, there will be some buying pressure from QQQ specifically, which is the NASDAQ 100 ETF, that is that, that tracks the NASDAQ 100. There are a bunch of other ETFs that are leveraged that, that track it. But I think just to keep things simple, qqq has like $288 billion worth of market cap and NASDAQ changed the rules to accelerate, basically get rid of seasoning. So make SpaceX eligible to be part of that index and therefore face inflows from that ETF much earlier than their prior rules allowed. Now the sizes here, you know, I think Quantum is right to sort of put an asterisk on this and say, well, the numbers really aren't that huge. I think my back of the envelope math suggested it would be something like 2 to 3 billion dollars worth of buying because of the existing float rules they have in play initially. And then that would rise over time as more shares get unlocked from lockups expiring and as that that float weighted weight in the index sort of gets closer to reality. But you know, it's not nothing, but it's definitely not, you know, the S&P 500 saying you're a full member on
• 1:18:31
  Quantian: the first day yeah, so the, the, the important thing to keep in mind is this is the largest ipo, you know, ever in history, but it's still comparatively quite small relative to the market cap of SpaceX. So they're selling something like $75 billion worth of stock. There is a green shoe where they can sell a little bit more if it all goes well. But pretty much everybody who is an owner of SpaceX is going to be locked up for a moderate to extremely long time. So this is going to trade like it's sort of a $75, $100 billion company because the other 1.7, 1.8, 1.9 trillion is restricted. And so I actually, I did read this part of the S1 because this is probably the single most important part of the S1, more important than the financials, which is the lockup schedule. So you can think of the structure of SpaceX, the company, as VCs. Those investors own about 25% of the outstanding stock. The employees of SpaceX, other than Musk, own about a third. And then Musk owns about 42, 43%. Plus he's got some options which are probably worthless because he needs to build a Mars colony in order to exercise that. But on paper you might still count them.
• 1:19:52
  George: They still count. They still count.
• 1:19:54
  Quantian: Yeah, they still count. And so Musk has agreed to be locked up pretty much for a long time. So I think he can't sell a single share for more than 366 days. And most of his shares are the super voting shares, which he's not going to sell anyways. So he can only probably sell, I think it's something like 7 or 8% of the company and then only after a year, the VCs. So that 25% has also agreed to be locked up for a year, or at least the larger VCs have, have. So there's not really asterisk here. Very important. We'll come back to it. But there's probably not going to be a lot of explicit selling from institutional investors early on for at least a year. However, that one third that's owned by the employees. I hate to say it, but Elon is really a great guy because most of this sort of fraudy stuff is for the benefit of the SpaceX employees who own the stock, because they are the only ones who are going to be able to sell in this interim period where it will be added to the indexes, but it will not be eligible for the large shareholders to sell. So there's like this huge waterfall that lists a Bunch of conditions. I think it's something like if the Stock is up 30% from IPO, you can sell 10% of your stock. Once they report earnings, you can sell 20% of your stock every month. You can sell like 5 or 6% of your stock as long as it's above the IPO price. So there's these whole conditions where this third of the company that's owned by employees can be sort of dribbled out piece by piece over the next couple of months. And it is over that sort of six month period because it's 180 day lockup. So after six months they're sort of free and clear to sell no matter what. Where it will be really important that they are included in the indexes because it will be sort of, the indexes are kind of the buyers as the employees sell down their stakes in the coming months.
• 1:21:49
  Eric: And it's really important. This is actually really important. Vote both for EBITDA versus GAAP reconciliation purposes. I've over, over the last two years I've tried to like suss exactly how much SpaceX employees have historically been compensated. It's somewhere, I think it's somewhere in net engineering and technical staff. It's, it's about 50% of their the time, you know the. Because for a while SpaceX was like a, it was only you know, a 60, 70 billion dollar company and as recently as like a couple years ago. And so employees are worked very hard and a lot of them are paper multi, multi millionaires and so they've worked very hard at pretty low pay. Not just like on versus like software companies versus other aerospace companies. Like you have a lot of engineers that are basically, basically living, you know, middle class, not even like good middle class. Like they're working like kind of lower tier engineering salaries because they've just been accruing like these huge, huge equity compensation tranches that, so there could be some reflexivity built in there too. Especially with how much of the, the float that is that is held by them.
• 1:23:02
  Quantian: I did find one thing kind of interesting, which is that again, you know, props to Elon for implementing fully automated luxury communism. But nobody other than Elon and some very early stage investors is really getting super, super rich. I think Gwynne Shotwell is walking away. She's basically, you know, kind of the brains behind the operation. The COO president who actually, you know, makes sure the rockets fly and stuff. She's walking away with I think a little over a billion.
• 1:23:30
  Ed: Oh, is that all?
• 1:23:31
  Quantian: And then you just have this Massive pile of like early invest or sorry early employees who have like, like over a hundred billion, a hundred million in many cases. And then like this tale of like thousands and thousands of employees that have like over 10 to 100 million in equity. So there's, there are a lot of people that are going to get very, very rich off of SpaceX that are basically these engineers in, you know, Texas that are, that are actually building the rockets.
• 1:23:57
  George: I do think it's important to emphasize that as those lockups expire is and as those shares become available will have a direct impact on how much the indices are able to buy. So at a very minimum here, what you're talking about is a transfer from index investors having to buy at whatever the current price is to those early employees. Slash other beneficiaries of Facebook or of spa. I keep saying Facebook, I don't know. Zuck and Elon are basically the two evil guys apparently in my head to SpaceX. Early employees, early investors, et cetera, mostly early employees. As Quantum was just saying, there is sort of an interplay there where index investors are going to fund the cash outs for those people. And it is possible that that dance works out in ways that aren't terrible for any one person. But, but it's also possible to see a very, very small float IPO get bid to ridiculous levels because you have to own it. And then this sort of transfer from those elevated price levels leads to a bleed off that leads to index investors buying over time to cash out those early investors and ultimately still being left hole in the bag. Even though it's not like SpaceX will be in hundreds of millions of retirement accounts at enormous size right from ipo. I still think there's a big risk to index investors from this. It's just there's a case to be made that it's maybe not as bad and there is a decent outcome eventually based on who's selling when.
• 1:25:44
  Quantian: Yeah, I mean I'm going to put my chips down which is, I do not think the S and P is going to put SpaceX in the index. I think ever, not ever, but I think not in the near term pre employee and investor lockup. I think there is no benefit for them for doing it. Elon doesn't really have that much leverage and they can basically say look, this is the rules, you know the rules. You're welcome to join in 2027 after the price has been discovered and that'll be that. And you know, he might complain on Twitter, but I, I, I don't think Those proposed rules will go through.
• 1:26:19
  George: Okay, so the proposed rules, essentially the proposed rules were bringing down the seasoning period by six months and removing profitability requirements. So as it is currently, you have to actually make money on a generally Accepted Accounting principles basis before you get into the s and P500, which is really the big daddy for index investing. Like, if you're in the s and P500, you have huge index flows that come to your stock. If you're not, if you fall out, same problem in the reverse. Right now it's a year, you have to be public for a year and you have to actually make money on a GAAP basis. And the proposal is six months and you don't have to make money anymore. You're still float weighted as opposed to market cap weighted, which is very helpful in terms of keeping SpaceX low as a constituent weighting in that index. Nonetheless, it is a loosening of the rules. But that's, that's interesting. You think that won't go through because The S&P's proposed changes were much, much less aggressive than the NASDAQ's accepted changes.
• 1:27:26
  Quantian: Yes, I want to close the loop on something which was I sort of asterisk at the VC bit, and I think that is something that is interesting that I did want to discuss. I know we've been, you know, you've been listening to us jabber for a while, but, but might as well make it a little longer. So in the US there actually is a restriction on companies, which is if you are a private company, so you're not listed on the stock market, but you have more than 2,000 beneficial owners, you're still required to file financials with the SEC as if you were a publicly traded company. You have to be audited, you have to disclose it, et cetera. This is something that, that is an existing part of US law that everyone basically ignores for reasons which are quite unclear to me. And this is not like a new thing. This is something that has been ignored for a while because SpaceX almost certainly has more than 2,000 beneficial owners that are not employees there. Like I said, you've got all these VC funds that own it. It is very popular sort of investment strategy for the rich people that you'll have some investment bank go together and buy up a bunch of SpaceX stock from employees, package it into a vehicle, and then sell shares in that vehicle to rich investors. It's called Special Purpose Vehicle. There's a ton of them. For SpaceX, there are publicly listed vehicles on the market, right now where you can go out and buy like essentially shares in a, in a close end fund that owns mostly SpaceX.
• 1:28:55
  George: And we are not telling you the tickers for those, by the way.
• 1:28:57
  Quantian: Yeah, we're not telling you the tickers. It's a terrible idea. They, they will often trade at huge premiums. So they'll be like, oh, we own like 100 million worth of SpaceX and they trade for like 500, 600 million dollars. So there are thousands and thousands, probably hundreds of thousands of people that have stakes in SpaceX in some way or another and they've just sort of flagrantly flouted this regulation for a while. So I think this is interesting in terms of the dynamics because with a normal IPO of a VC backed company, you have a fairly limited amount of people who own that stock, right? Like you've got a couple VC funds, you got the founder who owns a big chunk, you got maybe a couple hundred or a thousand employees and you kind of know who owns all the stock. So you know, like, hey, we're putting this in your brokerage account, like you're not allowed to sell it. We've told your broker that you're transfer restricted on this. So we know for a fact no one is going to be able to violate the lockups on, you know, whatever, XYZ Datadog, ipo. I just picked a random company, I don't even know if they're public yet. But with SpaceX, because it's so diffused, Datadog is public.
• 1:30:06
  George: They crushed earnings last week.
• 1:30:07
  Quantian: Oh, thank you, George. So with SpaceX it's so diffuse, so many people own it. Like nobody really knows who the ultimate beneficial owners of this 25% of SpaceX is like, because it could be anybody. So although on paper there is this lockup, there isn't really anything stopping somebody who has like super rarefied third or fourth order SpaceX exposure from just going out and like buying puts or shorting it in the market to hedge because SpaceX doesn't know that they own the stock. Like it's going to get daisy chained through a bunch of LLCs and eventually arrive in your brokerage account in eight months. So you know you own SpaceX, SpaceX doesn't know you own SpaceX and SpaceX is not going to be monitoring your brokerage account to make sure you don't place any trades in violation of the lockup. So you know, I kind of go back and forth on, yeah, like it's a, it's a low float ipo. They're Only selling a couple percent of the company. It's super desirable. A lot of people really want to have this exposure, so maybe it's going to go up a lot. On the other hand, you know, there's $1.6 trillion worth of people who own SpaceX who technically can't sell, who might have a blind eye toward turned towards them if they do try to sell. So, you know, you never really know how that is totally going to shake out in the market.
• 1:31:26
  George: Kind of a horrifying scenario to think of is like everyone who has exposure tries to hedge it by either, you know, buying leap puts or shorting the stock directly through a different brokerage account, et cetera, so they don't get get netted out and you create a huge synthetic supply and then the worst short squeeze in human history that like first one and then the other. Of course not at the same time. Because yeah, when you, if you, if you're shorting a stock, you're creating supply, right? You can't naked short in the US anymore, but that you can sell puts naked. It amounts to the same thing with a little bit of abstraction. So yeah, that's kind of fun to think about. It'd be really funny to see someone get wiped out when they had this big lucrative pot of SpaceX that they're not allowed to sell, but then they get margin called so bad on the short side of the trade to hedge it that they have to declare bankruptcy or something like that before they can
• 1:32:30
  Ed: actually sell their underlying stock for absolutely no reason. Certainly not related to the prior. Welcome to all of our new Wall Street Bets listeners. You're going to love it here.
• 1:32:46
  George: All right, I think that is just about enough finance and SpaceX talk before we close out this very long but fascinating and really, I think helpful segment. Eric. Quenching. Is there anything that we, we really need to talk about with this that we missed?
• 1:33:03
  Quantian: We didn't talk about the space data centers. I was a little bit upset about that.
• 1:33:08
  Ed: We have had an actual space guy on to talk about space data centers in the past. You might have missed out.
• 1:33:13
  George: Yeah, we brought an astrophysicist on so we will link that episode in the show. Notes to discuss. TLDR not going to work.
• 1:33:22
  Eric: I unlike, unlike Quantien actually listen, so I heard that one. I think I was cleaning out the garage when it was on. So yeah, it was good, good.
• 1:33:31
  Ed: A good pastime for this show.
• 1:33:33
  Propter: That's the listener environment that we try to pitch our shows to. Exactly.
• 1:33:37
  Eric: So yeah, shitty dad work. That's Right.
• 1:33:42
  Propter: I actually have one more question for you guys about, about SpaceX and Tesla, which is my kind of naive prior on this has been that there's only a certain amount of money out there chasing Elon Musk fairy dust that, you know, right now Tesla's financial proposition is that Elon Musk will sprinkle fairy dust on it and this will result in profit down the road. And it seems to me that that's also basically SpaceX's proposition. Why does creating a second pot of Elon Musk fairy dust denominated securities somehow result in there being more money chasing Elon Musk fairy dust?
• 1:34:22
  Quantian: I think my answer to that, and this is very speculative, so keep that in mind, is that Elon Musk is well aware of this and the ultimate plan is that there will not be two separate Elon Musk entities, that SpaceX will be merged with Tesla at some point in the indefinite future. Now this is sort of interesting and I kind of want to sort of tap dance around any kind of investing advice but, but if you are Elon Musk and you do have these two public entities, one of which you have sort of totally insulated from any possibility of your loss of control, where you own a giant chunk of the economics and the other of which is sort of your problem child and you only own, I think you own something like 22, 23 instead of like 44, 45, you know, you have certain incentives for making that merger work in a way that's very accretive to you. So you know, my, my strong supposition is that two years or three years or whatever from now there's only going to be one surviving company and it's probably going to be SpaceX and there some sequence of events will occur that will be very good for Elon Musk to ensure that that merger happens on the most favorable terms for him. That would be what I would say.
• 1:35:39
  Ed: Is it going to make money?
• 1:35:42
  Propter: That's kind of not really material to the, to the question here, I realize,
• 1:35:46
  Eric: but important I'm gonna go out there and say no, it will not. Yeah, I, I, I, I don't know, I think my, I don't know, I go back and forth. I, I, I think, I think, I think Elon Musk is the greatest capital raiser of all time. I think I, it's pretty un, un, unquestioned. I, I actually think it's just like a lot simpler. It's that Musk is very, you know, I, I think, I think he did when both did, did, did not want to go public. And I think, I think the, the, I don't know, I don't know if you want to call it panic or whatever. I think the time to act happened was that, you know, you see kind of the panic and flustering around with, with Tesla is that I think the, the, the natural like any sort of like organic growth from like SpaceX, the legacy space that SpaceX business was starting to flag and he's growing down and cashing out. I mean it's not really cashing out. There's some ways that he can monetize it. But I think this was, it would be bad. And he knows this kind of instinctually is that if, if, if SpaceX revenues were, were plateauing extremely high or if they were, you know, starting to decrease, that's like the worst environment to, to, to bring your very expensive holding public. And so I think that it's kind of more cynical than that. And I don't think, I don't think there's a plan except for that he's going to find whatever the next new big thing is. I do think that they'll ultimately merge them. I don't think there's any sort of plan. I think this is all very reactive to, to, you know, the, the, the understanding that the kind of core pitch of, of Tesla had been inflecting to, to flat and looking like it's going to be, you know, go unprofitable. And I think kind of SpaceX, it's, it's, you got to go public while you're at your kind of nadir of, of actual, you know, plaza growth in some unit economics. So I think that's what happened.
• 1:37:41
  George: I think the term in rocketry is apogee, not nadir.
• 1:37:43
  Eric: But okay, that is great.
• 1:37:49
  George: No, I mean to add to what Eric said, I think Elon Musk in it, I think that's apt about being the best capital raiser of all time or certainly the most prolific. But he's also the biggest martingaler of all time. He just doubles down on everything, everything, all the time. It's always a double down. And that strategy works really well up to a certain point and then it does not. In a casino there are rules to prevent you from doing that. In the wide world of public markets, it's a little bit more complicated and we're going to test the limits of that and I'm very confident in that. So with that thought, I think we're going to wrap it up there. Guys. This has been really great. You can follow Eric at esghound bsguy social. You can follow Quanshin at Quantien. Q u a n T I a n bskuy social for normal men. In Charlotte, I'm George.
• 1:38:45
  Propter: In D.C. i'm Proctor.
• 1:38:47
  Eric: In outer Florida, I'm low tax speedrun enjoyer.
• 1:38:50
  Ed: And in Boston, Ahmed.
• 1:38:52
  George: Stay normal, y'.
• 1:38:53
  Eric: All. It.