SpaceX ‘the biggest beneficiary’ of potential sanctions on Russian space industry: Analyst

Deutsche Bank Space Technology Analyst Edison Yu joins Yahoo Finance Live to discuss Europe's dependency on the Russian space industry and how potential sanctions could affect SpaceX and other space companies.

Video transcript

JULIE HYMAN: All we have talked at length and at breadth about the various effects of Russia's invasion of Ukraine and the sanctions against Russia-- affect on commodities, on different industries. Let's talk about the effect on the space industry, because it is not insubstantial. Edison Yu is joining us now.

He's a space technology analyst at Deutsche Bank and was just out with a note on this very subject. Edison, before we ask about what's happening now, to take a step back and set the scene-- what role does Russia play in the space industry?

EDISON YU: Thank you for having me on. And it's actually quite a large role. And it's somewhat similar to energy, I would say. The Europeans in particular, the European Space apparatus, is very dependent on Russian rockets and Russian rocket technology. If you look at, for example, OneWeb, which is a competitor of Starlink, all of their launches have occurred on Soyuz rockets.

Soyuz is considered the workhorse rocket for, basically, most European launches. And if you subtract that from the equation, they don't really have any viable alternatives for, basically, the next year, with the exception of SpaceX. And part of our analysis basically indicates that the biggest beneficiary of any sort of exclusion or sanctioning of Rockets is SpaceX with the Falcon 9 and, to a lesser extent, maybe the Falcon Heavy.

BRIAN SOZZI: Edison, what does this turbulent time mean for those companies that have tried to launch space exploration businesses?

EDISON YU: Yes. So in terms of the impact on new space, there's not too much I would say immediate negative implications. The reason is because, in particular the US, has already decoupled a lot from Russia. If you think about 20 or 30 years ago, there was this huge reliance on rocket engines. If you look at, for example, the Boeing Lockheed joint venture ULA, they were using rocket engines for a very long time until fairly recently when they fully phased out the dependence with the next generation of vehicles.

So for the traditional space industry in the US, it's basically just kind of getting around phasing that out. For new space, it's basically been all home grown and not very reliant-- I mean, there's a few exceptions, but, for example, a Rocket Lab would not be impacted. Someone like an Axiom Space would be doing stuff with space infrastructure that's not impacted. It's mainly the legacy, I would say, space apparatus and also, to, obviously, a greater extent, as I mentioned earlier, the European Space Agency.

JULIE HYMAN: Let's talk about the International Space Station too. I believe there are seven astronauts up on the ISS right now. And this is a project that is a cooperative one between the US and Russia. So what happens to it-- what happens to those folks who are up there?

EDISON YU: Yeah. So this is an extremely complex topic. I think there's people who have probably been discussing for days on exactly what could occur. My base case is that you would not see the Russians go up there and take a chunk of it and try to do something with it. It's just too interconnected.

It's just too much cooperation over the years that it would not make very logical sense just to walk away. Ultimately, the progress on it will go on. But the Russian involvement likely becomes less, and less, and less. And how that exactly manifests itself would be probably a series of fixes involving SpaceX, involving some of the other commercial partners. And my sense is that Russia would probably work closer with China on their new space station that they're putting up at the moment.

BRIAN SOZZI: Many experts have said, Edison, that this situation highlights how far behind the US is in space. Just given where things are, do you do expect more spending from US companies, from the US government on space just to catch up with some rivals?

EDISON YU: Yeah. So, actually, I would actually take the other end of that. I don't think it's so much that the US is necessarily behind. If you look at the entire US space industry-- private public put together-- it's, I think, generally well ahead of the latest, I would say, efforts coming out of Russia. We're in this transition point, and in particular Europe-- as I mentioned, so much energy where they're in the process of transitioning to next generation technology, just like the industry is transitioning to sustainable energy.

But there's this gap. And the Russian rockets are sort of filling in this gap. If you don't have this entity to fill it in, there's going to be some disruption. So I think, in particular, if you look at SpaceX, you look at Rocket Lab, these companies, they're already farther ahead on rocket technology.

You can look at SpaceX targeting 52 launches this year, Rocket Lab launched within three weeks of each other on a few of its electron rockets. The entire apparatus is certainly moving ahead and very quickly. It's just the stop-gap impact can be very material because of this transition that we're in.

JULIE HYMAN: Edison, finally, I want to ask-- the companies that you talk about, are they good investments for investors right now? I mean, obviously, people can't buy SpaceX directly. But what about the publicly-traded companies?

EDISON YU: Yeah, absolutely. So our top pick continues to be Rocket Lab. I think the important thing to keep in mind is in the near-term, there's going to be a lot of volatility-- for geopolitical reasons I'm sure everybody has seen. But if you look at the long-term implications to a company such as Rocket Lab from less dependence on Russian rockets, that gives them a much bigger opportunity to use their upcoming rocket, Neutron, to do a lot more missions sooner rather than later, preferably.

So I think the long-term impact is actually quite positive for Rocket Lab. But the near-term, there's going to be a lot of market dynamics. There's going to be a lot of questions raised about how fast we can make this transition. But the endgame is that their rockets are going to fly more and be much more strategically important.

JULIE HYMAN: Really interesting stuff, Edison. Thank you so much. Space technology analyst at Deutsche Bank, Edison Yu. Appreciate it.