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Rocket Lab's Neutron: What Investors Need to Know - The Motley Fool

Rocket Lab's new rocket is a gigantic leap in capability.

Give SpaceX credit. Its project to develop an entirely reusable "Starship" rocket to transport satellites to orbit, astronauts to the moon, and -- eventually -- colonists to Mars has captured the imagination of a nation. But SpaceX isn't the only space company with designs on the reusable rocket market.

As we learned last week, Rocket Lab (NASDAQ:RKLB) is building its own reusable rocket, called Neutron.

Introducing Neutron

Investors first heard about Neutron back in March, when Rocket Lab CEO Peter Beck publicly ate (part of) his hat -- thus fulfilling a pledge that he had previously made when disclaiming any interest in building either large rockets, or reusable rockets.

Neutron, you see, would be both those things.

At the time, Beck told us little more than the bare facts: Neutron would be bigger than Rocket Lab's existing Electron rockets, carrying as much as 35 times the payload. And also unlike Electron, Neutron would be reusable. Seven months after the initial announcement, however, Rocket Lab held a news event last week to reveal further details on Neutron. 

What we know about Neutron now

Neutron will bear little resemblance to Rocket Lab's four-year-old Electron design, which has completed 23 missions to date. Rather, Beck says Neutron has been designed to be a "2050" rocket, and when it begins launching in 2024, it will be more than a quarter-century ahead of its time. 

What's different about Neutron? For one thing, the new engines that will power it. Dubbed "Archimedes," these engines will burn methane and oxygen to produce one meganewton (220,000 pounds) of thrust at sea level. Seven Archimedes engines will power Neutron's first stage, and a single vacuum-optimized Archimedes engine will power Neutron's second stage. 

Speaking of that second stage, Neutron's most innovative twist is that it will carry its second stage inside its first stage. After climbing above Earth's atmosphere, Neutron's first stage will open up its "Hungry Hippo" fairing and eject its second stage with attached payload. The second stage engine will then ignite to complete delivery of the payload, the fairing will close, and the first stage will descend to Earth to land back on its launch pad -- much lighter than it began its trip. (The second stage will also descend to Earth, but being expendable, will burn up on reentry).

Cutting costs through elegant design

On the launch pad, therefore, Neutron will have the appearance of a single, 40 meter tall, solid "bullet" to space, 7 meters wide at its base and tapering to a point up top (at the fairing). The wide base, incidentally, will permit Neutron to land back on Earth without any complicated landing gear. Instead, it will land on four solid fins integrated into the chassis. This design will also permit Neutron to launch from a free-standing posture -- needing no expensive launch tower to keep it from toppling over.

And while Rocket Lab is taking pointers from SpaceX in a couple of respects (the "Hungry Hippo" fairing mimics the fairing design on SpaceX's experimental Starship, and of course, the pivot to reusability is a direct imitation of SpaceX), one trick Neutron won't attempt is landing on a barge at sea. SpaceX does sea landings when it needs to save fuel. Rocket Lab will avoid them in the interest of "eliminating the high costs associated with ocean-based landing platforms and operations."

What it means for Rocket Lab investors

"Over 80% of all the satellites ... built in the next decade are going to be small satellites and constellations," says Rocket Lab CEO Peter Beck. Unlike existing rockets like the Atlas V flown by Boeing and Lockheed Martin, or SpaceX's Falcon 9, which were designed to launch large satellites into orbit, or SpaceX's Starship, whose ultimate goal is to carry humans to Mars, Neutron is "optimized" to serve the small satellite market. (Rocket Lab has apparently abandoned the goal, which it initially floated, of getting Neutron certified to carry astronauts to space).

Instead, Neutron is right-sized for a laser focus on the growing small commercial satellites market -- rather than for human spaceflight, or for the large science and "national security payload" payloads that ULA and SpaceX actively compete for. And if Rocket Lab can figure out the reusability aspect, Neutron should become a cost-effective solution for the missions -- and customers -- that it's targeting. 

Incidentally, Rocket Lab is targeting a first launch in 2024 -- the same year analysts forecast Rocket Lab to turn profitable. By that time, Rocket Lab's business should have grown eight-fold in size (more than $460 million in revenue projected, according to data from SP Global Market Intelligence).

With Neutron in its fleet, Rocket Lab has a much better chance of hitting that mark.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Rich Smith owns Rocket Lab USA, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.