Econ Dev Blog no. 2 - Production of space ships
We are now to the second Econ Dev blog; this one focusing on the production of spaceships.
To begin with, it is interesting to look at the total number of spaceships (as of September 2007) by race and category. Overall there are more than 3.6 million ships active in EVE. Caldari spaceships are by far the most popular ones with more than 1.2 million flying in space. There are also one million Gallente, 670 thousand Minmatar and 635 thousand Amarr ships. Most of these spaceships are smaller types, ranging from shuttles to cruisers. Shuttles account for a combined 1.3 million of the 3.6 million ships, or 36% of total number of ships. Figure 1 below looks at the composition of the current number of ships in space.
Figure 1. Share of spaceships by race and major category. For Capitals, spaceships from the Gallente race are the most popular. For the Faction ships the Caldari are the most popular, in the Tech 1 and Tech 2 columns the Caldari and Gallente have similar share though combined the Caldari vessels are slightly more numerous.
Figure 1 shows the distribution of ships among the four different races split into the categories of Capital ships, Faction ships, Tech 2 ships and Tech 1 ships.
For Capital ships the most popular type is the Gallente Obelisk with 2500 units in space. A combination of factors make the Obelisk the most popular type. It is tough and with similar cargo hold as other freighters but when it was introduced it was relatively easy for Gallente pilots to train their skill level to be able to fly the ship, hence it gained popularity fast and is still the most used freighter around. The Thanatos, a Gallente carrier, is also a popular Capital ship with almost 1600 units in space. The Charon freighter and the Chimera carrier are both at about 1100 units. For the Amarr race the Archon carrier is the most popular vessel at 950 units, followed by the Providence freighter at 840 units. Overall for the Capital category the freighters are the most popular ship type.
For the Faction ships, the single most popular battleship is the Caldari Raven Navy issue with more than 1800 units. The second most popular vessel for Faction ships is the Minimatar Machariel of which there are about 1200 units in EVE. The Gallente Vigilant and the Amarr Succubus are the most popular Faction cruisers and frigates respectively.
The Tech 2 category has a relatively even distribution of spaceships by race but Caldari claim the most popular T2 title with a total of 80,000 units followed by Gallente with 70,000 units. Amarr and Minimatar have about 50,000 units each and 12,500 Ore Tech 2 ships mine the asteroid fields of EVE. The most popular vessel is the Caldari interceptor Crow with 11,600 in service. The Crow is favored due to its fast speed and missile capabilities. The Taranis interceptor from the Gallente race is also popular with 10,400 spaceships.
The Tech 1 category includes a long list of spaceships. Many of these spaceships are of no particular interest, such as shuttles, but they still account for large percentage of the total number in the category. Hence we will focus on the most popular Tech 1 fighting units. The table below gives an overview of total spaceships by race and category.
Table 1 reveals that frigates are the most popular category of Tech 1 ships, followed by cruisers, battleships, battle cruisers, and destroyers. The popularity of Frigates is as expected as they are cheapest and require the lowest skill level to be able to fly. Racial ship distribution parallels the general distribution of the population in EVE (more on that in the first Quarterly Economic Newsletter).
There are over 200 different types of spaceships in EVE and would take more space than I have available in this blog to provide an overview of the production of all types. We will instead focus on the most popular types as mentioned above or other types that are of special interest.
As we can see from figure 2 below, the number of units produced has been increasing over the past year.
Figure 2: Total number of spaceships produced daily from September 2006 through August 2007. The 30 day moving average increases from about 20,000 ships per day to more than 21,000 ships per day. The linear trend line shows a steady increase throughout the period though total daily production varies from as low as 14,000 units to more than 26,000 units.
Figure 1 shows the total production of spaceships per day, from September 2006 through August 2007. Production fluctuates considerably on a daily basis but the 30 day moving average shows that production is about 20,000 units per day increasing steadily to 22,000 units per day in August 2007. This is a 10% increase over the time period or about 0.8% per month. Looking in more details at the graph there is an obvious increase in production after the introduction of invention, tier 2 battle cruisers and tier 3 battleships in Revelations I. Production reaches a peak about two months after the release of Revelations I and is relatively stable over the next four months. With the introduction of Revelations II production picks up again with maximum production peeking at more than 26,000 units daily and a moving 30 day average production of about 22,000 units.
The number of spaceships is though not an accurate measure of total production since producing an Amarr Shuttle is not exactly the same as producing an Avatar, is it? Hence we will look in more details at the production by the following categories; Tech I, Tech II, Faction and Capital ship.
The next figure shows four graphs which order spaceships by total quantity produced from January 2007 through August 2007.
Figure 3. Four graphs showing the top ten spaceships produced within each category from January 2007 through August 2007. Tech 1 and Tech 2 ships are produced in ten and hundreds of thousands, while the high-end Faction and Capital ships are produced in hundreds or thousands of units.
The most produced Tech II ship is the Crow but the Taranis comes in a close second as combined they account for a total of 25,000 units. Both types have been lost at similar rates resulting in a net growth of about 8,000 units for the Crow and 10,000 units of the Taranis. We should therefore expect to see both spaceships in great numbers flying around the front lines of EVE.
In the case of Faction ships the Raven Navy issue has been the one in highest abundance but the most produced ship over the past year has been the Caldari Navy Hookbill. At the same time Raven Navy issues are being lost at a higher rate (1500 units compared to 250 Hookbills). This could lead to the Hookbill becoming the most numerous Faction spaceship in EVE. Given that the Hookbill does not give any great combat advantages over other Faction ships and that it has been sought after mainly as a cool looking spaceship, we expect to see the price of Hookbills decline in the near future. They are currently trading between 25 and 30 million ISK through the contract system.
For the Capital ships the Thanatos carrier has had the largest production number of about 2800 units over the past 8 months. The Thanatos is an effective carrier which can pack a heavy punch from a long distance, a feature that results in a strong market demand. Production capacity has been on the rise and total production has increased from 2 ships per day in September 2006 to an average of 6 ships per day in August 2007 (some periods see as many as 14 ships produced daily). With both strong supply and demand we expect to see Thanatos continue to increase in production with price expected to continue to be in the 1.0 billion ISK range.
Most ships are produced in Empire space. Last year 84% of all spaceships produced where produced in Empire while 16% were produced in 0.0 space. Note most Empire production takes place in low sec areas (0.4 and below) in order to be able to produce the high-end spaceships, such as Capital and Tech 2.
Eve is about territorial control, which results in large scale warfare with huge losses of spaceships (and many times the pilots are taken down with their ships). Looking at total ship losses gives us an interesting overview of which spaceships are the most popular for combat.
Figure 4. Top ten losses for Tech I and Tech II ships from January 2007 through August 2007. For the Tech II ships the Crow and Taranis are obviously the workhorses of the fleet with 15,000 and 20,000 units lost in the last 8 months. The Kestrel and Raven have also both been used widely on the battlefronts of EVE with over 80,000 losses for each type.
For the Tech 1 category the Kestrel is the one that is lost in combat most often with more than 80,000 units destroyed in the past year or little less than 50% of total production of the type over the period. The Raven is in the second seat over lost Tech 1 spaceships with about 80,000 spaceships lost. At the same time only 100,000 ships have been built. Ravens are being lost at an even higher rate than the Kestrel or about 8 out of 10 ships produced during this period. Prices for the Raven have been stable at the same time at about 90 - 100 million ISK per unit. The market for Ravens is therefore expected to continue to be stable though prices might start increasing if production does not pick up over the next few weeks.
In the Tech 2 category 80% of the Crows produced were destroyed during the same period. From January 2007 through August 2007 more than 25,000 Crows where built but nearly 20,000 units were lost. The figure below shows this clearly where we compare ships builds to ships lost. The Crow and Taranis are showing a loss ratio of about 80% and 60% respectively. Other Tech 2 ships have a loss ratio of 50% or less. The Tech 2s are obviously taking a hard beating out there.
Looking at figure 6 for Faction ships shows similar trends for the Raven Navy Issue. The Raven has been a popular vessel in all kinds of EVE warfare, both PvP and for mission running and shows how versatile the platform is. Despite being popular on the front lines the loss ratio is just about 60% from January 2007 through August 2007. Supply of the Raven Navy Issue increased steadily until July 2007 when supply reduced sharply from 45 units per day down to 5 units due to changes in the loyalty point system. Since supply has stabilized at around 5 units per day and with stable demand we should expect prices to continue to be in the 600 – 800 million ISK range in the coming weeks.
Figure 6. Top ten losses for Faction and Capital ships. The Raven has the most losses but is also the most popular type. Thanatos are being lost at a much lower rate but this is as expected due to its expense and long range keeping them toward the rear ranks.
The Thanatos is a carrier used for long range battles and as a support ship to the front line units. Hence its loss ratio is relatively low at 16% compared to the 80% rate for the front line units.
Prices and margins for Caracal
Figure 7 shows the historical development of production cost and average market price for the Caracal. From 2004 the price of the Caracal has been relatively stable between 4.0 - 5.0 million ISK per unit. In order to produce a Caracal several minerals are needed and of course a blueprint, see here for details. Using the market price for these minerals and the average market price for the Caracal we can see that the margin of producing a Caracal is about 40%, i.e. total sale value minus variable costs. It is interesting to see how stable the margin has been over the time period.
Figure 7. Production cost (mineral cost) of Caracal and average market price from October 2003 through August 2007. The margin has been relatively stable over the time period at around 40% (+/- 5%) with reduction in production costs resulting in decreases in market prices and vice versa, indicating a high degree of market efficiency.
An original blueprint for producing a Caracal can be acquired for 45 – 50 million ISK and renting production space is less than 5.000 ISK per unit. We can see that with an investment of 50 million ISK and a profit margin of about 1.5 million ISK per unit that it would take only 30 to 35 units to have the initial investment fully paid. Individual profit rate of return would then simply depend on how many units the industrialist can produce within a given time period. Manufacturing can therefore provide a good stream of income, even for the relatively unskilled pilot; just remember to keep your eye on the product and raw material markets, especially now when we have the turmoil on the tritanium market.
The link between the mineral market and production of spaceships
One hypothesis from the last Econ Dev Blog was that the increase in tritanium prices earlier this year resulted from an increase in production, especially that of Capital ships. Figure 2 above showed that production was indeed increasing from December 2006 through January 2007 in terms of number of spaceships. Figure 8 below shows tritanium in billions of units traded on one-hand and on the other used for ship construction from September 2006 through August 2007.
Figure 8. Tritanium used for ship construction vs. tritanium traded on the market. There are two distinct periods of increased use of tritanium; first after the release of Revelation I when average daily usage increased from 10 billion to 14 billion units and the next one when the average daily usage increased from 14 billion units to 15 billion units. Traded quantity has been increasing throughout the time period, from about 15 billion units to more than 20 billion units.
There is an obvious increase in tritanium usage two days after the release of Revelations I. Soon after that the 7 day moving average stabilized around 14 billion units per day which is a considerable increase (40%) from the 10 billion per day need prior to Revelations I. At the same time we see an increase in quantity traded until the end of January 2007. This happened at the same time as price of tritanium was increasing (see Econ Dev Blog nr. 1 – figure 9. In addition we can see that quantity used increased again after the release of Revelation II in June 2006 and stabilizes with a 7 day moving average above 15 billion units per day. Both releases have therefore increased the use of tritanium and hence increased overall demand for the mineral throughout EVE.
Simple correlation between quantity traded and quantity used in all production is 0.59. As for further evidence we can use more sophisticated methods to test for the relationship between quantity used for production and quantity traded. One such method is co-integration which can be used to show the integration between two non-stationary variables. Using an Augmented Dickey-Fuller/Fisher test we find that the two time series are indeed stationary in 1st difference (assuming no constant nor linear trend). Johansen co-integration test shows that there is a co-integrating equation; indicating a causal relationship between the two time series (use and trade of tritanium). The correlation confirms that there is a relative close relationship between quantity used and quantity traded and the co-integration shows that these two time series do not move away from each other in the medium or long run. Hence it is safe to say the price increase in tritanium earlier this year is indeed linked to increased production after the release of Revelations I. This finding is relevant to what is now happening on the market for tritanium where the price has been rising over the past four weeks.
Short update on the mineral market
Price of tritanium has increased by 30% to 35% in the past four weeks. Changes in game mechanics which have affected the availability of tritanium as well as expectations due to new spaceships being introduced in the near future are probably the two major causes for this price increase. What we might be witnessing is a situation where speculation is driving the market as manufacturers, having realized tritanium supplies are dwindling from the reduced availability resulting from changes to coupling arrays, are now stockpiling the mineral in order start production on new ships as soon as they become available.
Currently tritanium is trading at 3.00 – 3.25 depending on region. Given the changes in supply and increased demand in the past months, and expectations for higher demand in the future we are expecting so see prices increase further in coming weeks. However, there is a game mechanics price cap of tritanium at about 3.6 ISK per unit. It is a strong recommendation on behalf of the chairman of the economic board that price of shuttles, and other items which create artificial price barriers, be increased or other measures taken in order to avoid price caps on the market for minerals (and any other market for that matter).
This is the last blog before we publish the first Quarterly Economic Newsletter (QEN). The QEN will focus on standard macroeconomic indicators as well as discussion on the economics of EVE in general. The money supply will be the main topic of the day. Currently there is about 80 trillion ISK in EVE. Of that 10 – 13 trillion is inactive at any given time (but could potentially be activated) leaving about 67 – 70 trillion of active ISK in the system on a daily basis. Trade between pilots amounts to 1.5 trillion ISK per day but in addition there is considerable trade between NPCs and pilots which both adds to the overall value in the economy as well as adding ISK to the system. Historically ISK has been growing in sync with increase in population but the most exciting part will be to know if that has been changing in the past few months. Also, there are some very rich pilots in EVE but to know how much the top 5% hold of the overall ISK in the system you will have to wait for the QEN. Until then – let's do some trading.
The next blog will be published by the end of November and the QEN will be published before Fanfest 2007 (November 1st – 3rd).