Tesla is preparing contingency plans to separate its China business as Elon Musk explores a potential merger between the electric vehicle maker and his space company SpaceX, The Wall Street Journal reported
Tesla CEO Elon Musk denied a report that the electric vehicle maker is preparing to separate its China business as part of plans for a potential merger with his space exploration company SpaceX.
Responding to a Wall Street Journal report on his social media platform X, Musk said the claims were entirely false.
“This has never even come up in a discussion ever. Absurdly fake news,” Musk wrote.
The Wall Street Journal reported on Friday that Tesla executives had been asked to prepare for a possible separation of the company’s China operations ahead of a potential merger with SpaceX. According to the report, advisers had explored several options, including spinning off, selling or even closing the China business, although the plans remained preliminary and could change.
Tesla and SpaceX did not immediately respond to Reuters’ requests for comment outside regular business hours.
Merger speculation continues
The report came amid growing speculation that Musk could eventually combine Tesla and SpaceX, two of the world’s most valuable companies.
Earlier this month, Musk declined to rule out such a merger during Tesla’s earnings call, saying any move would have to follow the appropriate corporate process while pointing to increasing overlap between the companies’ technologies.
Interest in the idea has grown following SpaceX’s record $75 billion initial public offering process, prompting investors and analysts to debate the strategic benefits of bringing Musk’s automotive and aerospace businesses under one umbrella.
More from BusinessSpaceX President and Chief Operating Officer Gwynne Shotwell also acknowledged the possibility in June, telling CNBC that combining the companies “might make Elon’s life a little easier” by simplifying management across his businesses.
China presents regulatory challenge
Any merger between Tesla and SpaceX would likely face significant regulatory and geopolitical hurdles, particularly in China.
SpaceX is a major US defence contractor involved in national security missions, including launching classified government satellites and operating satellite communications systems.
Tesla, meanwhile, owns and operates manufacturing facilities in China outright rather than through a joint venture with a local partner — a rare arrangement among foreign automakers.
Analysts at JPMorgan have previously identified regulatory approvals, especially in China, as one of the biggest obstacles to any potential merger because of SpaceX’s close ties with the US government.
Why Tesla’s China business matters
Tesla’s Gigafactory Shanghai is the company’s largest and most productive manufacturing facility worldwide.
The plant serves as a key export hub for Europe, Canada and markets across the Asia-Pacific region, with annual production capacity exceeding 950,000 vehicles. Historically, the factory has accounted for more than half of Tesla’s global vehicle deliveries.
China is also Tesla’s second-largest market after the United States, although the company faces intensifying competition from domestic electric vehicle manufacturers such as Chinese automaker BYD.
The Wall Street Journal reported that Tesla executives had also discussed creating a separate sales entity to manage exports from the Shanghai factory. Other measures reportedly considered included separate office systems and limiting China-based employees’ access to Tesla’s global operations.
China remains critical to Tesla’s supply chain
Tesla’s manufacturing success in China has been driven by a deeply localised supply chain.
The company has previously said that more than 95 per cent of components used in China-made Model 3 sedans and refreshed Model Y SUVs are sourced locally.
Tesla China executives have also said the company works with more than 400 domestic suppliers, with over 60 of them supplying components to Tesla’s global operations.
China-made Model 3 and Model Y deliveries rose 24.4 per cent year-on-year in June, while second-quarter vehicle sales and exports from the Shanghai factory increased 32.8 per cent, underscoring the strategic importance of the facility despite growing geopolitical tensions between Beijing and Washington.
While Musk has firmly denied any plans to split Tesla’s China business, speculation over a future Tesla-SpaceX combination is likely to continue as both companies deepen their investments in artificial intelligence, robotics and advanced manufacturing.
With inputs from agencies.
