Elon Musk’s name is practically synonymous with renewable energy.
The tech titan and CEO of both Tesla (NASDAQ:TSLA) and Space Exploration Technologies (NASDAQ:SPCX), or SpaceX, rode a wave of concern about vehicle emissions to not only create the first viable U.S. electric car company but also to grow it into a global automotive superpower and one of the world’s largest companies.
In 2016, Tesla bought solar company SolarCity and introduced solar roof technology that replaced traditional roof shingles with small solar tiles.
So why is Musk, of all people, making a quiet billion-dollar investment in fossil fuels on behalf of SpaceX? And what does it mean for SpaceX investors?
A tale of two fuels
SpaceX’s S-1 prospectus – the company information shared with the public just before its IPO – doesn’t mince words when talking about the company’s views on solar energy. “The Sun contains approximately 99.8% of the solar system’s energy and, as a result, we believe it is the only truly scalable solution to terrestrial energy constraints in the age of AI,” the prospectus says. It goes on to repeat this assertion five more times.
However, the company doesn’t seem interested in harnessing solar energy anywhere but in outer space. Its giant Colossus II data center on the Tennessee/Mississippi border is expected to be powered by natural gas for the foreseeable future.
SpaceX’s prospectus notes that it “significantly” relies “on natural gas and gas turbine technology to power our data center operations.”
“As such,” it continues, “our ability to scale our infrastructure depends in part on our continued access to natural gas supply at economically feasible prices [and] the availability of gas turbines and related equipment.”
More gas
Given this ongoing reliance on natural gas power, it’s pretty clear why Musk would want to buy a company that supplies it: owning one’s own power infrastructure minimizes the potential for supply disruptions or rate hikes.
However, SpaceX’s recent billion-dollar acquisition isn’t of an existing gas power plant near the Colossus II data center. It’s of Jacksonville-based APR Energy, which operates a fleet of small gas turbines and diesel engines mounted on trailers.
Because these are small, mobile units, they can often be installed within days without the lengthy siting and permitting process required for a permanent power plant.
SpaceX classifies these as temporary mobile equipment units and claims that they’re exempt from Mississippi’s air-permitting rules. The Southern Environmental Law Center and Earthjustice disagreed, and they sued SpaceX in June, arguing that “mobile” equipment isn’t really temporary if it’s parked in the same location permanently and never leaves.
To date, SpaceX has installed 59 of these small units, which could collectively emit 2,500 tons of nitrogen oxide per year, even though each individual unit’s output would likely fall below the 100-ton nitrogen oxide maximum set by the Clean Air Act for unpermitted turbines.
What it means for SpaceX investors
AI data centers are massive, power-hungry facilities. The more there are, the higher the demand for power to supply them.
On the one hand, it’s good that SpaceX is making plans beyond the local electricity grid for its power supply. On the other hand, SpaceX still expects to require additional grid capacity to supplement its natural gas generation. The prospectus says SpaceX will directly fund this capacity through its “local utility partners.”
What about the lawsuit? Well, in the short term, it doesn’t seem like it will be much of a problem, given that both the U.S. Departments of Justice and Defense have argued against shutting down the company’s mobile power units in Tennessee. They claim such a shutdown would undermine national security because of Grok’s use by the military. Thus, the mobile units are likely to remain at least for the remainder of the Trump Administration.
Beyond that, however, there’s no guarantee. SpaceX notes in its prospectus that “the outcome of these legal actions is uncertain,” and an incoming administration less friendly to fossil fuels, AI, or Elon Musk could certainly revisit the issue, causing headaches for SpaceX down the road.
Lastly, the move calls into question SpaceX’s claims that solar energy is both the key to satisfying AI’s endless appetite for electricity and its ticket to dominating a $26.5 trillion AI market. If that’s the case, why isn’t the company investing in this critical technology now to get a head start on potential rivals? It’s another sign that investors may have to wait a long time for SpaceX to grow into its current $1.8 trillion valuation.
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John Bromels has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
