Rebirth: Starting from Lighting Up the Tech Tree

Chapter 181 Cost Advantage

On the third day after Zuo Cheng returned to the Hangzhou headquarters, Han Lu brought him a price list from a competitor.

She placed several sheets of printed paper on the table, covered with densely packed numbers.

"SpaceX just updated its offer," Han Lu said. "The Falcon 9 is $5,500 per kilogram for low Earth orbit. Blue Origin's new Glenn rocket has offered $4,000, on the condition of a three-year exclusivity agreement."

Zuo Cheng picked up the price list and glanced at it.

What about the European Space Agency?

"Ariane VI costs $9,000 per kilogram, with a scheduling period of three years." Han Lu placed down another sheet of paper. "Domestically, Long March 8 costs $7,000 per kilogram, but we don't accept commercial payloads."

Zuo Cheng memorized these numbers.

SpaceX: $5,500; Blue Origin: $4,000; Ariane: $9,000; Long March 8: $7,000 (but not publicly disclosed). Where should the price of the 402 rocket be placed?

What about our costs?

"Based on current production capacity, the manufacturing cost per unit is 60 million, and the launch service cost is 20 million, totaling 80 million. With a 10-ton payload capacity, the cost per kilogram is 800 US dollars," Han Lu said. "After the new factory goes into operation, the cost per unit will drop to 45 million, and the cost per kilogram will be 450 US dollars."

Zuo Cheng nodded.

The cost is $450. The price is set at $1,500, with a gross profit of 60%, which is one-third the price of SpaceX.

"We're announcing new pricing," Zuo Cheng said. "US$1,500 per kilogram for low Earth orbit and US$4,000 per kilogram for geostationary transfer orbit. Customers who sign bulk contracts for ten or more launches will receive an additional 20% discount."

Han Lu was taken aback: "Fifteen thousand?"

"One thousand and five."

"At this price, the gap between SpaceX and us would be more than three times."

"It has to be more than three times," Zuo Cheng said, "so they can't afford to keep up."

The day after the new price was announced, Zuo Cheng received the first group of clients who came to discuss prices in the conference room.

Mr. He from Jiutian Satellite was the first to arrive. After sitting down, he didn't exchange pleasantries and directly pushed a document in front of Zuo Cheng.

"This was our original launch budget. According to SpaceX's quote, the total cost for launching six satellites was $120 million. With your new quote, it only costs $24 million." Mr. He tapped his fingers on the numbers. "That's a five-fold difference."

"It's not a five-fold difference," Zuo Cheng said. "It's that SpaceX's price is inflated. Their actual cost is less than half of the quoted price; the rest is brand premium. We don't have a brand premium, so we can lower the price to the true cost plus a reasonable profit."

Mr. He was silent for a moment: "I want to confirm something. With a price of 1500, can you make a profit?"

"Yes," Zuo Cheng said. "The rockets, engines, and control systems are all self-developed, and we even designed the satellite interfaces ourselves. Vertical integration eliminates middlemen's profits, and automated production saves on labor costs. That's our confidence."

Mr. He nodded and put the budget documents away.

"We can renegotiate the contract for those six satellites based on the new quote."

"Sure," Zuo Cheng said. "Furthermore, if Jiutian is willing to sign a long-term agreement, promising to entrust all launches within the next three years to 402, we can reduce the price by another ten percent."

"How much lower?"

"One thousand three hundred and fifty dollars."

Mr. He's eyes lit up.

That afternoon, Pan Jiangtao from Malaysia made an overseas call.

"Mr. Zuo, I've seen your new quote," Pan Jiangtao said. "Five thousand a ton, six times cheaper than the European Space Agency's. The board has unanimously approved it."

"Han Lu will send you the contract details."

"No need to issue it," Pan Jiangtao said. "The contract amount will be cut by 70%, and the new quote will be implemented. In addition, two satellites that were previously shelved will be added."

"Two more?"

"Yes. The price of 1,500 has made our project budget much more manageable," Pan Jiangtao smiled. "The board has approved it, and the new satellite is already being designed."

Zuo Cheng put down the phone and looked out the window at Hangzhou.

The evening sun shone on the distant Qiantang River. Several cargo ships were sailing on the river, leaving white trails in their wake.

Yu Ying walked in.

"There's movement from Europe too," she said. "The European Organization for Meteorological Satellites (EGS) is demanding renegotiation based on the new quote. Two German companies have also inquired about scheduling."

"Tell them there are four more launch windows in the first half of next year. First come, first served."

"There are already people in line," Yu Ying said. "Han Lu's business calls haven't stopped from morning till night."

Zuo Cheng smiled.

Once a cost advantage is established, orders will flood in. In the space industry, launch costs determine the feasibility of the entire project. If launch costs are reduced to one-tenth, projects that were previously rejected can be restarted.

"There's another piece of news," Yu Ying said. "The founder of SpaceX posted another tweet."

Zuo Cheng took the phone.

The tweet was short: "Launch cost is the key to space access. Anyone who drives it lower is doing humanity a favor."

Zuo Cheng returned the phone to Yu Ying.

"He's making overtures."

"What do you mean?"

"He knew our 1,500 yuan offer wasn't a price war, but rather determined by our cost structure," Zuo Cheng said. "SpaceX's supply chain is globally dispersed, and labor costs are high. He knew he couldn't compete, so he figured he might as well go with the flow."

Should we respond?

"No need," Zuo Cheng said. "Respond with actions."

He stood up and walked to the electronic screen on the wall.

"This is our goal," he said, pointing to the screen. "Once the new factory is fully operational, the cost per unit will be 25 million. Further optimizing the supply chain and switching some components from outsourcing to in-house production can reduce the cost by another 8%."

"How much lower?"

"Twenty-three million," Zuo Cheng said, "that corresponds to a cost of four hundred US dollars per kilogram."

Yu Ying stared at the number and remained silent for a while.

"Four hundred dollars per kilogram. What does that mean?"

"This means space is no longer expensive," Zuo Cheng said. "A small satellite built by a college student, weighing ten kilograms, only costs four thousand dollars to launch. Four thousand dollars is enough to send your creation into space. This was unimaginable before."

He turned off the screen and turned around.

"Cost advantage is not the goal, it's a means. The real objective is to make it possible for everyone who wants to go to space to do so."

Yu Ying nodded.

The sky outside the window had darkened, and the lights of Hangzhou began to come on one by one. A satellite project that had been rejected was being revived because of a new offer, and space experiments that had been shelved were being restarted.

$1,500 per kilogram.

This price will change a lot of things.