Closing Bell - Manifest Space: Disruption Theory with Relativity Space CEO Tim Ellis 4/21/23

Episode Date: April 21, 2023

SpaceX's first test flight of Starship is pointing to a trend manifesting across the industry: bigger rockets. While Starship is a unique case, other companies are developing their own larger vehicles. Relativity Space, a CNBC Disruptor valued at $4.2 billion, is a private player known for 3D printing rockets having successfully flown its Terran 1 rocket for the first – and final – time in March. But now,  the company is moving towards a larger medium to heavy lift rocket meant to complete with larger players in the space. Morgan discusses the pivot with CEO Tim Ellis from the Space Symposium. For more Manifest Space, listen and follow here: https://link.chtbl.com/manifestspace

Less than a decade ago, SpaceX sued the government to be able to bid on military contracts, claiming a launch monopoly. It ultimately resulted in a growing book of national security business for SpaceX. But now, other startups are looking to disrupt the disruptor. There has to be in the U.S. a second quickly moving disruptive launch company at the medium to heavy lift payload size. And there really isn't. SpaceX is so dominant. They've done so many launches. It's inevitable there has to be a company to build this

capability because SpaceX otherwise would have a complete monopoly as far as low cost, you know, disruptive launch. And so we really are working to be that next company. Relativity Space is making a big bet on a bigger rocket, retiring its Terran 1 that just flew for the first and now final time last month. The CNBC disruptor company, known for its 3D printing technologies, is valued at $4.2 billion and touts investors like Fidelity, Belly Gifford and Sam Altman. On this episode, I speak with CEO and co-founder Tim Ellis from the Space Symposium

about the push for more power, 3D printing on Mars, and even generative AI. I'm Morgan Brennan, and this is Manifest Space. Tim Ellis, thank you so much for sitting down and joining me today. Appreciate it. Of course, Morgan. Glad to be here. Of course, we're here at Space Symposium. It's one of the biggest space conferences of the year. What's on tap for you here this week? What are you focused on? Yeah. So this week, since we just had our first Terran one launch,

really the biggest focus is on customers. So both governments and commercial entities, we're now really focused on Terran R, which is our heavy lift reusable rocket that we're now in development on. And so we've already sold about $1.65 billion in contracts for that rocket, but we have several billion more in the pipeline. And we're just talking with those customers to show what the path to get to this first launch is going to look like with that next vehicle. It's very exciting and I definitely want to get into more of on the backlog and the customer side of things. But first just in terms of Terran 1, you did this launch not that long ago. Successful in the sense that it got off the launch pad, didn't actually reach orbit, but now you've already

sort of stepped away from Terran 1 and the focus is on Terran R. This much bigger and more powerful rocket. Yeah, exactly. So from Terran 1 and it is the focus is on Terran R, this much bigger and more powerful rocket. Yeah exactly so the the Terran 1 mission of course was seven years in the making since I started the company. It was the world's first 3D printed rocket. It did make space so a max altitude of 134 kilometers so well above the hundred kilometer line of space. It's also the first methane fueled rocket outside of China to ever make it into space. So we're using not just 3D printing in that first mission but also a brand new propellant combination which is really important for future reusable rockets that now

we're focused on. So there was no prior flight history of an orbital rocket in the U.S. even attempting to get to orbit and so we had to make some some strategic guesses especially in the phase ofS., even attempting to get to orbit. And so we had to make some strategic guesses, especially in the phase of flight with the second stage that ended up not igniting, which is why it did not reach orbit on this first flight. We're going 7,500 kilometers an hour. We had the stage separation event, and then a valve was slow to open on the engine, and then there was a bubble in the oxygen turbopump pump so those two factors caused it to not ignite but we got that data and now really we're taking all of those learnings from the Terran 1 program you

know not just with the actual rocket propellant fuels and the 3d printing technology but also just the operations of designing a rocket building a launchpad building a test site, and we're taking all of that now into Terran R. So that's really the focus of the company and really the new north star of what we're developing going forward. It's very obvious to us, even this week as we talk to customers, that there has to be in the U.S. a second quickly moving disruptive launch company at the medium to heavy lift payload size. And there really isn't.

Like SpaceX is so dominant. They've done so many launches. And they're really the only other low cost provider that isn't, you know, the market actually operating. There's a bunch of new rockets in development, some with established companies like ULA and the Vulcan rocket that they're about to fly. Also New Glenn, which is with Blue Origin. Rocket Lab has a rocket called Neutron. But we really see Terran R as the only one that's actually hitting the product market fit of what customers need to see. It's low cost. That's why we sold so many of them. And it's inevitable there has to be a company to build this capability

because SpaceX otherwise would have a complete monopoly as far as low cost, disruptive launch. And so we really are working to be that next company. And that's what the focus is. It's pretty incredible that we're talking about this possibility of SpaceX having a complete monopoly and the fact that you're coming in as a disruptor to the company that has for the past decade, two decades been the disruptor to the company that has, for the past decade, two decades, been the disruptor. Has this always been the plan to get into this area of the launch market?

Or is this something that, as the industry has evolved and shifted and grown as quickly as it has in recent years, became clearer and clearer more recently? Yeah, this was always the plan. So if we had raised all the capital that we've raised to date and started seven years ago, I think we may have even started at a much larger payload size than what we originally did. So Terran 1 was always more of a concept car where we were taking brand new technologies that did not exist before.

Nobody's even come close to 3D printing something as large as Terran 1, which is 85% 3D printed. We had to invent our own printers, our own engines and new technology. So we did all of that in Terran 1 and pushed the boundaries of what was possible in creating this new stuff. Now we're going to take those technologies, use them more strategically in a mass market product with Terran R. And this was the game plan. When we started at Y Combinator, actually Sam Altman, who now runs OpenAI, was our direct partner and mentor in the program. And I remember we told him in our first office hours, we were going to go create a Falcon 9 competitor that was also reusable

and we weren't even going to do a small rocket. He told us we were a little too crazy and too ambitious to try that from day one, but it's always been part of our game plan because it's very clear to us, even though small launch and CubeSat launch is interesting, it's still a pretty small slice of the launch market. Really, if you're serious about being a launch company at scale, you have to be able to service a lot of the larger low Earth orbit constellations that are in development, and geosynchronous satellites and also have payload capability to the Moon and to Mars, which requires a much larger rocket.

And so that's really always been the focus of how quickly can we chart a path forward and have people believe in us and have demonstrated enough execution ability so that we can actually go to the biggest market opportunity. And the market has really just evolved over the last seven years to heighten that desire and drawing us towards it. And so the reason we're moving on from Terran 1 is we've learned enough of the lessons and proved enough of ourselves with that technology.

And so now we just need to put all of our resources in the products that customers want and the market wants and go become an orbital company with that product. You sound like a person who's not surprised to see the shakeout and consolidation that we're now seeing in the small launch end of the market. Yeah, I'm not surprised whatsoever. I think a few things happened. One, doing a SPAC and going public, it was certainly frothy times and I think even we

at Relativity knew that. Of course, we were prime target as well. We were approached by tons of different entities for it, but we made the decision very quickly to stay private. We were able to raise capital privately, so there was really no need to have to go public so soon. But I think a lot of companies just did it prematurely and now you're seeing that sort

of result in a bit of a death spiral with some of them where stock prices are low, in some cases 80, 90 percent lower than when they actually were listed. That makes it almost impossible to raise more capital if you need to. And a lot of companies in the launch space and space sector are capital intensive and they take a long time to develop. And so if you're in the situation where you just can't get the capital to continue developing your plans, it's really just not gonna work. And so, you know, lots of these companies

stayed with small launch. They didn't really ever have such an ambitious leap towards the larger vehicle space. Perhaps they didn't have a launch site or they didn't have a team that they thought could execute a larger rocket, or candidly, they were just kind of pot committed and not able to be flexible in their plans and their strategy. And I think that's really important to navigate this environment is to actually be flexible, to have that kind of killer instinct of where the market's

going and then just go focus on that ruthlessly. Yeah. And I will say when it comes to the private markets and particularly the VC community, a lot of buzz and a lot of talk about relativity. If Terran R isn't coming to market until I think you're targeting 2026, right? Do you plan to stay private? Do you have enough cash to go through that development process to then begin to generate revenue on a regular basis? Yeah, I would never say never, but certainly I think through Taron, our first flight in 2026, staying private would be way more optimal. This is the reason we have very blue chip investors behind us like Fidelity, like BlackRock, like Bailey Gifford. So people that really are long term focused, they certainly have the ability to continue to support us should we execute and should we continue to prove ourselves.

And so I think that's been a really important and kind of strategic thing to our capital structure. And so that's really going to enable us to just be heads down, focused. Any noise that comes out, certainly our company profile is getting a lot bigger now post-first launch. And now that we're really, in many ways, going ways going head to head against the kind of heavyweights in the launch industry with literally a heavy lift launch rocket. It's 3.3 million pounds of thrust at takeoff. This is not a small vehicle. It's quite a bit bigger than Falcon 9, but it's focused on first stage reusability.

It's a bunch of architecture innovations that we have for it to optimize reuse, but without a bunch of really crazy science project type innovations that are not proven because really the goal is to be a customer centric and customer focused rocket company. And right now customers are telling us there just is not enough launch supply or launch capacity period in the world through about 2027 or 2028. There's a giant launch shortage, actually. And the only company that I think can actually fulfill it besides relativity would be SpaceX. But the problem is

SpaceX is developing their own satellite constellation, Starlink. And so there's a bit of a conflict of interest where if a satellite company needs to launch something right now, SpaceX is a really good option. But SpaceX is also going to compete against them as they launch their own payloads into space. And so that's really the dynamic we hear a lot about is there needs to be diversification of launch options that are actually low cost and can compete.

And so that's really the opportunity. So when you talk, I have so many questions. So when you talk about low cost, what's the price tag you're targeting? Is that something you've disclosed? Yes, we haven't disclosed the price. But what I can tell you is it's 23,500 kilogram payload with reusability. It's 33,500 expendable. So this is a giant rocket. Customers are mostly looking at the dollar per satellite that you can actually deliver their payload into

orbit. So really, customers don't care if your rocket's 3D printed or not. All they care is, what is the dollar per satellite I'm paying? When is it launching? Is it reliable? And how many can I fit on at once? And so we've really optimized the parameters for product market fit of what we've heard from various customers they need to fit on the launch vehicle and bigger a little bit bigger was better and and so that's what we focused on it's certainly competitive with the best in class launch vehicles that are out there today and that's why we you know signed so many customers in fact every single commercial contract we've gone after of course we're going head-to-head against many of those other competitors I mentioned and we've won a

hundred percent of the contracts that we've gone after so we actually have not lost a single one yet and some of them we've sold above our list price so that's actually showing that there's more demand than supply so you are able to have some pricing power. But of course, it's still the lowest cost option for pretty much everybody that we've talked to. So what are the opportunities? I guess what's the mix or the mix that you would expect in coming years for this rocket of commercial versus say government? Yeah, I think it's probably 80, 90% commercial, and then 10 to 20% government. Although the government is

pretty important. Usually those are harder missions. They have more certification, more requirements to make sure that it's reliable. A lot of the payloads are either some form of national security payload potentially or government science mission. So they're very unique and kind of high cost payloads often. And so you end up having to charge a little bit more than you would normally for a commercial mission because there is more overhead that we incur to do those, but it's worth it. And so ultimately, the government payloads do have a kind of outsized impact on our overall business model. But we're really not banking on having to have government funding or government backing

in order to make Terran R happen. Really it's the commercial companies and the commercial market that's really driving the biggest need. And then of course we're able to be venture backed and privately backed. And so that's really providing a lot of the development capital here for the next couple of years. Got it. You mentioned Sam Altman.

Yeah. Are you thinking about AI in terms of manufacturing processes and other things in the company? Yeah, so I actually talked with Sam about this a pretty good amount still. So I think what he's done with ChatGPT has been obviously mind-blowing. I think the whole world's talked about it. I think it's a really unexplored area in manufacturing in general, but certainly with 3D printing. And it's one of the theses I've personally held for a really long time that we're looking at GPT-4, 5 today. What about GPT-15, 20? That's going to come out in just a few years because of the pace of iteration and innovation. And once you have AI that's extraordinarily advanced, I think a lot of the product design

and development of creating what the product looks like will change. Instead of people making a bunch of decisions, you'll actually have people saying, here's the input physics of how the rocket needs to fly, what payload it needs to take. Here's kind of the mission goals. And then I think AI will design more of the product itself. And then the factory you need to actually build that product is pretty likely to use a lot of 3D printing because 3D printing is really just a digital manufacturing technology

that takes all of the human labor, all the complex parts, many processes, fixed tooling, and puts them into a more software and data-driven form, which AI actually can interface with a lot better. And so I actually think a lot of the factory platform relativity is creating in the long run, as we develop Terran R, and then as we continue to improve the 3D printing tech over time, we'll actually be the first to take a lot of advantage of AI.

And so it's part of the long-term vision of what we're setting ourselves up for, which is breakthroughs in AI, allowing us to actually leapfrog lots of the traditional manufacturing approaches, because we'll just have access to a very different set of tools. Whether we create it or OpenAI creates it

or somebody else creates it, it'll help us create really advanced end products that weren't possible previously. It's really fascinating. I do want to get more into the 3D printing and additive manufacturing piece of this puzzle. Because as you mentioned, Terran 1 was 85% 3D printed. That percentage is scaling back with Terran R.

A, why the decision to do that? And B, how are you thinking about all of those innovations that percentage is scaling back with Terran R. A, why the decision to do that? And B, how are you thinking about all of those innovations and all of those learnings with the 3D printing processes in general? And I guess maybe potential future other revenue models. Yeah, of course. Well, as you mentioned, Terran 1 was 85% 3D printed. I think within Terran R, we're using 3D printing more strategically. So it's still a 3D printed. I think within Terran R we're using 3D printing more strategically. So it's still a 3D printed rocket. The only thing we're not printing is the straight barrel sections of the

the main fuselage tank. So we're using a traditionally manufactured aluminum alloy for that and then we're printing things like the domes, the more complex sections, pieces in the thrust structure, grid fins, and then the engines. So it's still by far the most amount of printing that's been in a rocket of that scale, certainly still relying on it a bunch. In fact, each Terran R has about six times the amount of printing of each Terran 1. So every Terran R we build would be like printing six Terran 1s in full. So it's still a ton of printing. And actually, the engine is a brand new 258,000-pound thrust engine.

We have 14 of them on the rocket, 13 on the first stage, which is reusable, and then one on the upper stage. That actually has four different types of metal 3D printing, so two different types we haven't even talked about publicly yet that Relativity's been in development for a few years on. Anything you can share here? Yeah, so the engine, we've got a big regeneratively cooled nozzle. That's using a new type of printing that lets us do very large parts, but with much higher detail resolution. And then we're also doing hybrid 3D printing, where we've got a copper inner liner of the chamber which helps prevent it from melting

and uses liquid methane as the the fuel to regeneratively cool it and then it also is using a high strength high temperature stainless steel like exotic alloy on the outside of the chamber that's using another 3d printing process that is different from what we've used before and then we also have the horizontal stargate 3d printers that we've developed now on the fourth generation of our own Stargate printing tech and that's also building big structural parts on the outside of the chamber. So it's all these kind of different technologies now that have been maturing over some period of time which now let us build this really huge 3D printed engine. I think the total engine is eight, nine feet tall almost when it's on the engine bell,

and it's four or five feet wide. So it's a pretty big vehicle and big engine. That was only possible because we've had these early investments. So 3D printing tech is really still in its early days. We're just pushing it forward the most of anybody else. And the decision to not use it for the straight barrel sections really was just due to the sheer demand that we're seeing. We've sold $1.65 billion of Terran R's. We actually have several billion dollars of deals that are in active negotiation right now.

So I expect some of those to start to close here over the next year. So our backlog i think is going to clear three billion dollars in total you know very shortly here and that's actually you know such a large number and customers need it so soon you know 2026 is the first launch date but in 27 28 29 and 30 the launch ramp volume is such that essentially as quickly as we can build them and fly them and then reuse them, customers will buy them. Like we're not seeing that we're demand limited at all. In fact, if we can't ramp fast enough, it'll start to hurt customers because they won't be able to

get anything into space at all because there's such a supply shortage expected here over the next decade. And so we really just need to get into production as quickly and practically as possible. And that hybrid approach really allowed us to still focus our energy and effort on developing the fundamentals of printing and incorporate things like AI and more advanced material science

for more reusable rockets in the future, while still only increasing production cadence about 6x instead of what you know if we had printed the whole thing probably would have been closer to 20 30 40 x which is a little bit too steep of a ramp to take on at this point in time so so we've just talked about the near term and even the medium term strategy for relativity longer. What's the vision? Where do you see this company growing and expanding into? What does it look like 10 years, 20 years, etc. from now? Of course. When I started Relativity seven years ago, of course the inspiration was really watching SpaceX land rockets and dock with the International Space Station. I was at

Blue Origin at the time. I was a propulsion engineer. I'd started the metal 3D printing division at Blue Origin. It's kind of a side project. So that's how I got this idea of, you know, 3D printing a rocket and really kind of built a thesis around this being the future. But then I was watching SpaceX do all this really inspiring stuff. And I realized they were still the only company in the world, despite at the time 13 years of success, that had this big vision of making humanity multi-planetary and going to Mars and putting a million people on Mars. And I thought that was both an amazing dream and a vision of the future, but also quite depressing that not a single other company had stepped up to the plate

and wanted to be a part of making that happen. So I founded Relativity as the second company working to make Mars happen in our lifetime at scale. We're focused on building the industrial base on Mars, so that's really where the 3D printing tech will eventually go, is I think if you're going to set up a civilization on another planet, you need a factory that's lightweight, that can build a wide range of products with very little human involvement and labor, because there's not going to be a lot of people at first, although they'll be very busy just trying to survive. And you need to adapt to a wide range of unknown conditions.

And so all of those parameters described an intelligent 3D printing based factory that you could actually launch on a rocket and build things on another planet. And so I think it's inevitable if that future is going to happen, somebody has to build that company. And I really just thought that was Relativity's chance, like, let's go be that company. So I started it at 25. Of course, here we are seven years later. We're now one of the largest by market cap private space companies in the world. I think we've got a lot of momentum towards that goal. But that's really what I want to go do is I want, you know, as far as the chapters of the company, chapter one was proved that 3D printing a rocket is viable. Chapter two is now use that early tech

to build the next great launch company, which is Terran R. Chapter three is then really expanding using this technology platform to disrupt the rest of a trillion dollar market in the aerospace industry. So once you can 3D print and build a reusable rocket, you've now demonstrated a lot of the core capabilities necessary to build other aerospace products using this technology. And then that would then fund going to Chapter 4, which is the vision of building this industrial base on Mars. So that's really the kind of four-step or maybe four leap plan. Each one of those is a pretty big step but I do see that it's certainly possible and I think somebody needs to at least give it an honest swing at bat to make it happen and that's what we're here to do is we're here

to be audacious but be very smart and calculated in the strategy of navigating it, and then figure out how are we going to actually make this happen in reality. And so the new updated version of Terran R is really, I think, a very practical, executable, focused product that will let us get to market as quickly as possible and build the next great launch company. So that's our next step. Well, congratulations on the commencement of Chapter 2. Yeah, thank you.

And it's so great to speak with you about all of this. And I look forward to speaking with you and covering all of these chapters of this story as they unfold. Really appreciate the time today, Tim Ellis of Relativity. Awesome. Thanks, Morgan. Appreciate it. Thank you.

Thank you. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.