2022 Key Space Industry Themes for Investors - Part 1
Geopolitical Competition
This is the 1st of a multi-part series where I will summarize key themes I’ve seen referenced in various 2022 Space Industry outlook reports that investors should be aware of as we start the new year. Subsequent posts will likely cover: lunar activity, launch/space tourism, satellites, manufacturing, and regulatory.
As we get closer to 4Q21 earnings szn (late January/early February) I will post 4Q21/2022 previews for the publicly traded space companies.
GEOPOLITICS AND A NEW SPACE RACE
Space is just one of many areas where the US and China are vying for global supremacy these days. In 2022, I expect to see more headlines regarding the “Space Race 2.0” as competition between the US and China heats up and the two countries butt heads, given that leadership in space is increasingly viewed as a strategic priority for both countries.
I anticipate that the press generated from these geopolitical narratives will bring more attention to space as an increasingly investable sector, which may have both positive and negative ramifications for space investors.
A GAME OF ONE-UPSMANSHIP
Why do the US and China care about space so much these days? DARPA put it best: cislunar space is increasingly viewed as the “new high-ground” (link).
On one hand, the US has been a leader in space activity since its last space race in the 50s and 60s with Russia. Recently, its space activity has increased in-part thanks to 1) NASA’s pivot to partnering with the private sector to develop capabilities versus supporting missions (see my 12/30 report on “What is New Space?” here for further context), 2) SpaceX’s development of rapidly reusable rockets, and 3) the Trump Administration’s prioritization of “restoring US leadership in space” (link). The last point is particularly important in the context of geopolitics, as it aligned US space leadership with maintaining “a cross-section of national interests, including the economy, national security, scientific advances, and foreign policy” (link).
“The United States must continue to lead its allies, while dissuading malign competitors, in order to preserve and advance U.S. interests in space…In order to be sustainable over the long term, U.S. efforts must align space policies, programs, and budgets with enduring national interests that span the political divide. Economic prosperity, national security, science, and foreign policy are all inherently affected by space activities, which provide both practical and symbolic benefits for the United States.”
The White House National Space Council, January 2021
On the other hand, China’s goals for space are no less ambitious: the press reports that CCP leadership wants the country to become the leading space power by 2045 (link).
While its space program is fairly nascent, China has made rapid progressed in the last two decades—China only first sent humans to orbit in 2003, but since then it has already executed multiple lunar exploration missions (unmanned), successfully landed a rover on Mars (2021), and began operating its own independent space station (2021). To have achieved these milestones in a ~20-yr period is impressive and speaks to the power of China’s CCP when it focuses attention upon a priority goal.
I will get into specific 2022 plans for each country later in this series, but generally, both countries are focused on achieving the same goals; what I wanted to highlight here is that it’s easy to see how each country’s goal of space leadership creates a sense of urgency for the other country to match or one-up planned activity in LEO or on the Moon/Mars, since they both want to be #1.
CHOOSING SIDES
An Economist article best highlighted a dynamic among non-US or Chinese nations that I assume will continue to crystalize in 2022:
“Some observers see the spacefaring world dividing into two increasingly opposed camps. One consists of America and (at the moment) 13 other countries that have joined its Moon programme. These have signed up to the so-called Artemis Accords, a set of motherhood-and-apple-pie principles about the peaceful use of space, data sharing, mutual aid and so on. The other, less formal, camp is led by China, with Russia a junior partner. Marco Aliberti of the European Space Policy Institute, an international quango, says that countries being wooed to join this group include Iran, Pakistan and Saudi Arabia.”
The Economist, January 2022 Edition (link)
The Economist article went on to detail that while India has not signed up for the Artemis Accords, the country “shapes its space exploration to gain an edge over its neighbours and rivals, Pakistan and China,” which suggests it would potentially join the US and others simply because it won’t align with China. Russia has historically been a space superpower and is still a major player, though maybe less so than it used to be. It is an obvious partner for China, though its path forward could be somewhat complicated given current operations with the ISS and its partnership with the ESA.
I anticipate international space activity will become more contentious in 2022. Countries that are not the US or China will increasingly feel pressured to side with one or the other, and the US and China will butt heads as the two countries ramp space activity to achieve hegemony.
CONCLUSION: HEADLINES WILL PRODUCE GREATER INVESTOR INTEREST IN SPACE
I expect that the press generated from these geopolitical narratives will bring more attention to space as an investable sector—there are quite a few newly publicly space companies, and investors may view greater federal attention toward space as an industry-tailwind. This increased focus on space investing has interesting potential ramifications.
For public space companies
The space SPACs have faced criticism regarding valuation and growth forecasts—a bigger spotlight on the sector could further punish companies that can’t execute upon previously issued guidance and are seen as overvalued.
On the other hand, Virgin Galactic’s stock ($SPCE) was a beneficiary of retail investor meme-mania in 2021. There is potential for other space stocks to experience similar volatility resulting from excitement in new technology if there is more retail attention focused on the sector ($ASTS in particular seems like a candidate here given notable existing retail investor communities on Reddit and Fintwit).
For private space companies
The newly public space SPACs have set high-water marks for space company valuations; however, greater interest in the sector due to government tailwinds could increase competition between a broader set of investors looking to lock in long-term investments as we begin a space race to Mars, which could benefit top space startups (particularly those focused on lunar technology)
Regardless of government demand, the outlook for NON-government demand for space services/products remains a key question that investors must carefully consider when looking at the sector, given that industry forecasts often assume material growth in demand from the private sector (i.e. what is the size of non-government demand for space products/services and over what time period will it reach forecasted levels, discussed here: link).