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This is an audio transcript of the FT News Briefing podcast episode: How Elon Musk’s new rocket could transform the space race

Lauren Fedor
Good morning from the Financial Times. Today is Tuesday, October 12th, and this is your FT News Briefing.

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Oil prices keep going up and up. And two of the most famous names in private equity are stepping down from the company they founded nearly half a century ago. Plus, the billionaire space race may not be much of a race, after all, because Elon Musk is so far ahead.

Richard Waters
You know, nobody else is being able to catch up with him. And if anything, he’s getting further ahead.

Lauren Fedor
I’m Lauren Fedor, in for Marc Filippino. And here’s the news you need to start your day.

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US crude oil prices hit a seven-year high yesterday. The increase is driven by fears that demand is outstripping supply. The benchmark West Texas Intermediate went past $82 a barrel and ended the day just over $80. Oil prices have been rising as the global economy has rebounded and amid a shortage of natural gas. American consumers are now paying more at the pump than they have in seven years, making oil prices a potential liability for the Biden administration.

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And a big changing of the guard on Wall Street. Yesterday, Henry Kravis and George Roberts stepped down as co-CEOs of KKR. They founded the firm nearly half a century ago and are known for pioneering the private equity buyout.

Antoine Gara
And really took that from a niche industry in the 1970s into one of the most important pieces of Wall Street.

Lauren Fedor
Antoine Gara covers private equity in the US for the FT.

Antoine Gara
And in that process, they also sort of engendered this dramatic change in corporate America, where companies were run more efficiently and management was heavily incentivised to increase earnings and a company’s stock price.

Lauren Fedor
Back in the 1970s, when Kravis and Roberts started KKR, corporate America was widely seen as inefficient and like a country club.

Antoine Gara
There were huge layers of management. It was really ripe for disruption, and the other change that happened in that era was the Michael Milken financed junk bond, which allowed investors like Kravis and Roberts to raise the debt to buy increasingly sizeable and important companies. So it was really a confluence of complacent, overburdened corporations that were trading at actually a real discount to their intrinsic value or the sum of the parts of their assets. And so these financiers, like Kravis and Roberts, were able to raise money, buy the companies, make them more efficient and pay back the debt by either selling assets or using cash flow to pay that debt. And that’s really changed in recent years. Now, corporations are run much more like in the mould of the way a KKR would run a corporation. And so it’s actually forced firms like KKR to expand into new markets and actually change the way they do buyouts.

Lauren Fedor
Investors will be keeping a close eye on KKR’s new co-CEOs Joe Bae and Scott Nuttall, as they usher in a new era at one of Wall Street’s most influential financial enterprises.

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We’ve been following the space race among billionaires like Richard Branson, Jeff Bezos and Elon Musk. But the race isn’t really that close.

Richard Waters
You know, nobody else is being able to catch up with him. And if anything, he’s getting further ahead.

Lauren Fedor
The FT’s Richard Waters is talking about Elon Musk, the founder of SpaceX. Richard says that Musk is succeeding, while Jeff Bezos and his company, Blue Origin, have struggled with delays in developing rocket engines.

Richard Waters
Rocket launches, what it’s all about is having an efficient launch vehicle that can get your and all your customers payloads up to orbit at very low cost. You know, this is where Musk has been well ahead of the game. It’s something like 13 years since, you know, he first put a rocket into orbit, and at the time it was an amazing moment. And the fact that really, no other private company has been able to do that since, is really just a mark of what an amazing achievement it was. Until somebody else manages to do that, I think he’s got the field, you know, pretty much to himself.

Lauren Fedor
Could you talk about Musk’s technology and how exactly it’s outpacing the competition?

Richard Waters
It all comes down to the Falcon 9, you know. This is the rocket that really has become the workhorse for getting commercial payloads into space. This year, the Falcon 9 has accounted for more than half of all launches into orbit if you exclude China and Russia in their own space programmes. So it’s really now dominating the market, and it’s done that just by bringing down cost tremendously. And, you know, I think this is very much what Musk did at Tesla. He sponsored a technology that was going to become commercial. And he pulled out all the stops to build a company and a process entirely around that technology to make it commercial. And in this case, that means reusable rockets. So just being able to reuse the boosts of the main parts of the rocket is massively cost saving. And the other is 3D-printing of the engines. You know, these are the most complex, expensive parts of the machines and to be able to design them to the maximum efficiency is what it’s all about. And so he’s brought his entire company around, you know, the process of developing, producing those things. It’s all vertically integrated like Tesla. And it’s just been very successful.

Lauren Fedor
And where’s the demand coming from? Who’s paying for this technology?

Richard Waters
Well, this is all about satellites at the moment. Communications satellites are getting a boom in low-earth orbit, these broadband networks we’re hearing more and more about that are starting to launch. But getting communications satellites into higher orbit, you know, that’s the bread and butter of the business. But then Musk can supplement it with a number of other things. And I think this is why SpaceX is doing so well because it can spread the costs of launch across so many payloads now would normally bring down the unit cost. So the other things that are really working for him while he’s launching his own satellites for his own network. So he’s got a captive in-house launch service. He’s winning contracts from Nasa. He’s shipping cargo to the International Space Station and people since a year or so back. And now he’s just won, I think the biggest contract this year, the moon lander, which won’t come for a number of years. But it’s, you know, nearly a $3bn contract. So these things are all adding to a programme which has got real scale.

Lauren Fedor
Richard, do you see any risks or obstacles in his way?

Richard Waters
You know, being Musk, there is always massive risk. And it’s risk that he takes on and he really kind of charges into. And the biggest risk of all is Starship. It’s the giant new rocket that he’s building, and he’s putting all his eggs in this basket. I mean, this is what he built his company for to take people to Mars. He needed something huge. And that huge thing is taking shape. He don’t have clearance to launch it yet. He hasn’t proved that it can get any further than, you know, a couple of miles up. And so I think we’re going to hear it for the next two or three years, you know, the struggles of Starship, how he’s going to try and make this thing operational. If it does work and I think most people in the industry assume you’ll get there in the end, again, it’ll be another huge leap forward. It’ll bring down the cost of getting to space, and it’ll put him just another big jump ahead of everybody else.

Lauren Fedor
Richard Waters is the FT’s west coast editor.

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And before we go, three economists in the US have won this year’s Nobel Prize. David Card from the University of California, Berkeley, shares the award with MIT professor Joshua Angrist and Guido Imbens from Stanford. The prize committee said the three had revolutionised empirical research by looking at the real world implications of policies like the minimum wage and immigration. One of the winners, David Card, said he first thought the phone call from the Nobel committee was a practical joke and he insisted his contributions were modest. But he did add that by focusing on real life issues like education and healthcare, he did, “oversimplify a field that’s often very theoretical”.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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