Elon Musk: The Future of Defense Contractors?

Defense Contractors

Last year, an infographic comparing Elon Musk to Tony Stark went viral. Musk is the billionaire entrepreneur whose companies include SpaceX, Tesla Motors, SolarCity, and Hyperloop. Tony Stark is the billionaire scientist and defense contractor who owns Stark Industries in Marvel comics. The most striking similarity between the two is a boundless confidence to take on big, technical near-impossibilities, and through sheer competence and inexhaustible resources, see their visions through. There is one huge difference that the infographic concedes: “Stark flies around in a highly-advanced suit of armor, policing the world. Musk does not.”

The software industry would seem to have a collective obsession with “disruptive innovation,” a phrase first coined by Clayton Christensen, a professor at Harvard Business School and author of The Innovator’s Dilemma. In short, the book’s thesis is that companies grow into powerhouses by developing a widget, finding a market, and continually improving that widget to meet the needs of said market. Disruptive innovation occurs when a smaller company comes along, rethinks the widget and its business model, and sells cheaper and to a different, wider market. A good example of this is Netflix, which totally rethought how consumers might rent and watch movies, ultimately undermining and destroying Blockbuster and the video store concept.

It is fitting then that Elon Musk hails from the software industry, having made the bulk of his fortune through PayPal, the online financial transactions company that he cofounded. The scope of Musk’s portfolio of disruptive businesses is astonishing. Most notably, perhaps, are his striking moves in the defense industry by way of SpaceX (formally: Space Exploration Technologies Corporation), a space transportation company. Earlier this month, the company’s Falcon 9 rockets (named for the Millennium Falcon, for the record) were certified by the U.S. Air Force for having completed three successful flights, which is “a prerequisite for companies seeking to win business from the Air Force’s Evolved Expendable Launch Vehicle (EELV) Program.” (While SpaceX’s rockets have had innumerably more successful launches than that, most notably with NASA, the Air Force certification requires them to be Air Force launches.) How is this disruptive? As the Motley Fool reports, “competitive bidding for EELV contracts, with SpaceX in the mix, could save U.S. taxpayers as much as $50 billion out of planned $70 billion in anticipated costs for the Pentagon’s space launches over the next 15 years.”

From PayPal to Mars

Musk entered the space business shortly after eBay purchased PayPal. His goal was to put a rover on Mars. The technology was there, but he soon discovered that the cost-prohibiting factor was the rocket itself. He built a team to study whether rockets could be made to be more efficient. He told Wired, “It became clear that there wasn’t anything to prevent us from doing it. Rocket technology had not materially improved since the ’60s—arguably it had gone backward! We decided to reverse that trend.” The cost of materials, he discovered, versus the present price of a rocket is 2%, “which is a crazy ratio for a large mechanical product.” A big problem among aerospace firms, in his view, is aversion to risk. “Even if better technology is available, they’re still using legacy components, often ones that were developed in the 1960s.” Rather than optimizing their technology, he said, “Everyone is trying to optimize their ass-covering.”

Today, SpaceX resupplies the International Space Station—the first private company to do so. It’s also the first private company to put a satellite in geosynchronous orbit. They still plan to send a spacecraft to Mars (indeed, they intend to colonize the Red Planet), though manned space missions to low Earth orbit are in the immediate future. None of this is to say that SpaceX’s plans are without obstacles. The company has argued that the Air Force’s bidding practice is oriented to favor United Launch Alliance, the joint Lockheed-Martin-Boeing rocket venture. Last month, SpaceX filed a lawsuit to require the Air Force to open space contracts for competitive bidding. Musk is also alleging a revolving door policy whereby Air Force officials are hired by United Launch Alliance-affiliated companies in exchange for exclusive Air Force contracts. You won’t be surprised to learn that members of Congress whose states build parts for the entrenched rocket industry are playing defense for the status quo.

Meanwhile, SolarCity, another Musk venture, is reshaping the solar power industry. Its business plan is essentially the opposite of everyone else’s. Rather than try and convince people to buy solar panels for their houses, SolarCity installs them for free. The company makes its money not on the sales of hardware but by selling consumers the electricity they generate. The Department of Defense has contracted SolarCity to provide power for 6,500 military houses in Hawaii, with plans to have the company provide power to Fort Bliss and Peterson Air Force Base, among other military installations.

An Electric Car You Might Want to Drive

Consider finally Tesla Motors, Musk’s electric car company. Previous iterations of “alternative fuel” cars from established dealers have been nothing short of rolling abominations—the hideous Nissan Leaf, for example, with its nerdy steal-my-lunch-money egg design and embarrassing, almost 1980s acronym for a name (Leading, Environmentally friendly, Affordable, Family car); or the even worse Chevy Spark, which you might not even have heard of, and which looks precisely like a car designed by a government committee.

Tesla, meanwhile, has radical design philosophy (specifically, it would seem: don’t make ugly cars); a distribution model that eliminates sales lots and comb-overed, tweed-jacketed hucksters with whom you have to negotiate; and most importantly for the long term: a more efficient, quickly rechargeable, and inexpensive battery at the car’s core. Does this have a future in defense contracting? Tesla seems to think so, if its recent structuring is to be believed. The Obama administration has been pushing its National Clean Fleets Partnership, a public-private partnership aimed at putting more electric vehicles on the road. That’s certainly up Tesla’s alley, but more so when you consider Tesla’s new leasing model announced last year, and the Defense Department’s keen interest in leasing electric vehicle technology.

Does the Defense Industry Need an Iron Man?

Ultimately, Elon Musk’s obsession with innovation and aggressive entrepreneurialism might prove to upend the way defense contractors do business, not only with regard to contracts and cost, but also competition. Nothing will spur the existing behemoths into innovation, after all, like a determined Iron Man coming for their billions.

David Brown is a regular contributor to ClearanceJobs. He is currently at work on his next book, One Inch From Earth, which tells the story of scientists who study the outer planets of the solar system. He can be found online at http://dwb.io.

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