Tesla weighs sale of China business to clear path for SpaceX merger; Musk calls report 'absurdly fake'
The Wall Street Journal reports that Tesla executives have been told to prepare for a separation of the Chinese business, with options including a spinoff, sale, or closure, to facilitate a potential merger with SpaceX. Elon Musk called the report 'absurdly fake news.'
The report and Musk's denial
The Wall Street Journal reported on 31 July that some Tesla executives have been told to prepare for a separation of the company's China business ahead of a possible merger with SpaceX, citing a person familiar with the talks. Advisers have discussed options including a spinoff, sale, or closure, according to another source. It is unclear how quickly such a move could happen, and the plans could change.
This has never even come up in a discussion ever. Absurdly fake news.
A Tesla China representative separately described the report as "false information," according to Il Sole 24 ORE. Neither Tesla nor SpaceX responded to Reuters requests for comment.
Tesla's China footprint
Tesla's Shanghai Gigafactory, which began production in October 2019, is the company's largest and most productive plant globally, with annual capacity of more than 950,000 vehicles. It produces the Model 3 and Model Y and serves as the main export hub for Europe, Canada, and the Asia-Pacific region. In 2025, the Shanghai factory accounted for more than half of Tesla's global vehicle deliveries, according to Grace Tao, Tesla vice president for external relations in China.
China was Tesla's second-largest market by revenue after the United States in 2025. In the April-to-June quarter, Tesla reported $4.7 billion in revenue from China, roughly 17% of its $28 billion total. The company sources more than 95% of components for its China-made vehicles locally, relying on a network of more than 400 domestic suppliers, over 60 of which also serve Tesla's global operations. The factory produced its four-millionth China-made car in December.
- China
- 4.7 $bn
- Rest of World
- 23.3 $bn
Why a separation would be needed
SpaceX is a key US defence contractor and plays a critical role in NASA's project to land a new crew on the moon. Any Chinese ownership tied to it would draw intense regulatory scrutiny, making a merger with Tesla's China-heavy operations problematic. Musk had previously instructed Tesla executives to keep the US and China divisions clearly separated to protect the American business in the event of geopolitical conflict, the Journal reported.
Talk of combining Tesla and SpaceX has grown more concrete since SpaceX's record initial public offering in June, which raised $86 billion. On Tesla's latest earnings call, Musk said the overlap between the two companies was increasing and declined to rule out a merger, though he added that any combination would have to follow the proper process.
- SpaceX IPO raises $86 billion, intensifying merger speculation.
- Musk says Tesla-SpaceX overlap is growing, declines to rule out merger on earnings call.
- WSJ reports Tesla considering China separation; Musk denies on X.
Hurdles to any separation
Untangling Tesla's China operations would be complex. The Shanghai plant is deeply integrated into the country's EV supply chain, and the company also operates a battery storage facility in Shanghai that exports to Europe, Asia-Pacific, and the Middle East. Tesla's next-generation hardware for robotaxis and Optimus humanoid robots, while developed in the US, relies heavily on China's precision manufacturing ecosystem.
Any deal would require approval from multiple Chinese authorities and could involve negotiations over production licences, land agreements, supply relationships, employment commitments, and data regulations. It could also risk a backlash from Chinese officials who have granted Tesla favourable treatment, including the right to operate as the country's first wholly foreign-owned car plant.
