David Senra

The Merlin engine family embodies this trade-off.

Russian RD-180 engines cost 20 to 25 million each, while the Merlin 1D production runs around a million.

How?

SpaceX eliminated hydrogen's complexity by using kerosene, used regenerative cooling with the fuel itself, and optimized for manufacturability over maximum performance.

The result was 95% of theoretical efficiency for 80% cost reduction.

Merlin's performance is slightly lower, but good enough at 1 20th the cost.

But identifying where to cut costs doesn't mean you can actually cut them.

You still have to build the parts.

Once SpaceX concluded that atoms were cheap and process was expensive, vertical integration followed almost inevitably.

That's a great line.

SpaceX concluded that atoms were cheap and process was expensive, and so therefore vertical integration followed almost inevitably.

The next subheading talks about this, becoming your own supplier.

If materials are cheap and the tax is all process and overhead, you need to control the process to capture the savings.

You cannot negotiate your way to a 10X cost reduction with suppliers who have profits baked in at every tier.

So SpaceX became its own supplier.

By building 80% of its hardware internally, engines, structures, avionics, software, and key ground systems, SpaceX collapsed the traditional aerospace stack.

They outsource raw materials and commodity parts and make everything else themselves.

That's something SpaceX didn't originally set out to do, one engineer noted, but was driven by suppliers' high prices.

This wasn't an ideological commitment to doing everything in-house.

It was the result of suppliers repeatedly quoting prices and timelines incompatible with SpaceX's cost targets.