SpaceX's production capacity is too powerful, forcing traditional defense contractors to confront "rhythm crushing."

The news of SpaceX's upcoming IPO has prompted investors to pay closer attention to how they will reshape the aerospace and defense sectors. However, according to analyst Matt Eck from BNP Paribas, the biggest disruption may not only come from the rocket launch business. In a research report released on Thursday, Eck and his colleagues stated that SpaceX's dominant position in the launch services sector is well known. The company conducted over 160 launches in 2025, nearly ten times the number of launches by their biggest competitor, Rocket Lab. Analysts forecast that as SpaceX increases production of the Starship, this lead will further expand. The report states that SpaceX is a leader in the space launch sector, with last year's Falcon 9 launches surpassing the total launches of other Western-made launch rockets. The Boeing Company and Lockheed Martin's joint venture, United Launch Alliance (ULA), are facing stiff competition, with the company bidding higher prices than SpaceX's Falcon 9 for U.S. national security launch missions. Despite this, BNP Paribas stated that their direct profit risk appears limited. In 2024, ULA's contribution to Lockheed Martin's operating profit is less than 1%, and its impact on Boeing Company is "insignificant." Starship may lower costs and reshape the space economy According to BNP Paribas' estimates, SpaceX's Starship rocket could significantly lower the cost of delivering payloads into orbit, possibly opening doors to commercial markets ranging from orbital AI computing infrastructure to Mars exploration. The cost of launching to low Earth orbit is estimated to be less than $1,000 per kilogram, much lower than competitors. Even as launch costs decrease, the Pentagon's short-term spending priorities are unlikely to significantly adjust, as launch costs account for a small proportion of military space budgets. "Launching is expensive, but the satellites used by the U.S. military and its allies are equally expensive," BNP Paribas estimates that rocket launch costs will account for about 7% of space force expenditures in the fiscal year 2026. Communication systems may face greater impact BNP Paribas stated that the larger long-term threat to traditional defense contractors may appear in the military communication network sector, rather than launch services. Analysts pointed out that SpaceX's recent $2.3 billion "Space Data Network Backbone" contract replaced satellite constellation programs involving Northrop Grumman, Lockheed Martin, Rocket Lab, and York Space Systems. The report stated that SpaceX's "Starshield" military communication system may also compete with tactical communication products supplied by defense giants such as L3 Harris Technologies and General Dynamics Corporation. "SpaceX has the capability to produce 200,000 Starlink terminals per week, which is orders of magnitude higher than the traditional defense giant currently producing radio equipment," the analysts wrote. "If it can leverage this, to offer terminal equipment at lower costs than traditional giants, then SpaceX may also be competitive in this area." However, BNP Paribas cautioned that military communication systems need to withstand battlefield conditions, avoid detection, and have dedicated hardware to interface with existing defense systems, areas in which traditional contractors still hold an advantage. The report also noted that some of the most vulnerable satellite communication architectures are gradually being phased out in favor of updated distributed low Earth orbit satellite constellations. Traditional defense industry still has some advantages Despite market concerns about competitive pressure, BNP Paribas maintains an overall positive rating on major defense companies. The bank reiterated its "outperform" rating on Lockheed Martin, Northrop Grumman, Raytheon Technologies, and General Dynamics Corporation, while maintaining a "neutral" rating on L3 Harris. Analysts believe that the Pentagon is unlikely to completely rely on SpaceX for critical communication infrastructure. BNP Paribas pointed out that Northrop Grumman's recent $398 million prototype contract for an "Enhanced Protected Tactical Satellite Communication System" demonstrates the Department of Defense's continued support for multiple suppliers. For investors, the report suggests that SpaceX's IPO may intensify scrutiny of the valuations of traditional aerospace and defense companies, especially those related to satellite communication and military network systems. However, BNP Paribas believes that despite SpaceX's scale and manufacturing advantages, the traditional defense industry still maintains significant technological, operational, and political advantages.