Is smallsat manufacturing the next industry bubble?
First, it was small launch vehicles. Then it was cubesat constellation operators. Now, the latest area of unbridled space-industry expansion is small satellite manufacturing.
The past 12 months have seen several developments in the smallsat manufacturing domain, notably:
Large capital raises, like Apex Space’s $200M Series C, a $170M Series C for Loft Orbital, and a $110M Series B by K2 Space;
Hiring surges by Berlin Space Technologies (50% increase in three months), MDA Space (950 new employees in 2024) and Millennium Space (quintupling in size over seven years);
New factories across the U.S. and Europe from AerospaceLab (an 11,000-square-meter “megafactory” in Belgium, and a 3,300 square-meter plant in Torrance, California), Argotec (11,500 square meters in Turin, Italy), and Terran Orbital (8,700 square meters in Irvine, CA); and
A major uptick in space-as-a-service deals from Planet, Spire and Iceye – three companies that originally built satellites only for in-house needs.
Bubble risk? It’s not clear what is motivating all of this expansion. Yes, U.S. government demand has increased through the Space Development Agency, but the commercial sector, not so much. If this supply is growing without sufficient demand to match it, the industry risks a reset like it saw with small launch and cubesat constellation operators. Both of those had surges in entrepreneurship during the 2010s motivated by grossly overestimated market sizes. At the end of the day, 100+ small launch vehicle startups yielded one disruptor in the form of Rocket Lab. Among cubesat startups, dozens of constellations across Earth observation and IoT connectivity thinned out to two leaders: Planet Labs and Spire. In launch, anticipated constellation demand went to heavier rockets, while in cubesat constellations, end users proved harder to capture than anticipated.
What’s different? A nontrivial amount of the surge in manufacturing capacity is clearly demand-driven. MDA is scaling up to build Telesat Lightspeed and Globalstar, and Millennium is building more satellites for the U.S. government, for example. Among space-as-a-service companies, pivots to use their in-house production capabilities for third-party customers provides meaningful revenue diversification from slow-growing EO markets.
That said, commercial demand signals haven’t changed much. The largest constellations, SpaceX’s Starlink and Amazon’s Project Kuiper, are vertically integrated and off the market. Commercial direct-to-device constellations are on the horizon, but only some will go to merchant suppliers while others are also built in-house (AST SpaceMobile, Lynk). Most EO satellite manufacturers build their own spacecraft, with demand driven primarily by government contracts. Investors should exercise caution before jumping on the satellite manufacturing bandwagon. Or plan on bringing a big checkbook if they do.