Tesla reportedly considers selling or spinning off its China operations ahead of a potential SpaceX merger

Tesla Weighs China Spinoff As Potential SpaceX Merger Looms Tesla is reportedly evaluating whether to separate its China operations through a sale, spinoff, or other restructuring as it considers a possible future merger with SpaceX, according to a new report from the Wall Street Journal. The discussions reflect increasing geopolitical tensions between the United States and China, as well as the unique regulatory challenges that would arise if Tesla became part of a company with significant U.S. defense contracts. The Journal reports that people familiar with the matter say Elon Musk has spent several years organizing Tesla so that its American and Chinese businesses can operate more independently. The strategy is intended to reduce risk if relations between the two countries deteriorate further, particularly in the event of conflict involving Taiwan or tighter restrictions on trade, technology, or critical supply chains. Separating the China business could also help address concerns from both governments. Chinese regulators may be reluctant to allow a major U.S. defense contractor to oversee Tesla's manufacturing operations, technology, and customer data in China. At the same time, SpaceX's work with the U.S. government subjects it to strict national security and export control requirements that could create additional complications if the two companies were combined. China remains one of Tesla's largest and most important markets, accounting for about 18% of the company's sales while serving as a major production hub for vehicles and batteries. Tesla has already taken steps to reduce its dependence on Chinese suppliers and strengthen the separation between its global operations. Although no decision has been finalized, reports indicate the company is evaluating multiple restructuring options as part of broader contingency planning. Musk has publicly denied the report, calling it "fake news." Just a few months ago, Tesla's China president was quoted by local media as saying the Shanghai Gigafactory could eventually play a major role in mass-producing humanoid robots.  The Shanghai Morning Post quoted Allan Wang Hao, a senior executive at Tesla China, who said the Shanghai Gigafactory could provide a "golden key" to mass-producing the Optimus robot. "Like other Tesla factories, Giga Shanghai can shoulder important responsibilities in manufacturing all new products, including robots, to make our contributions to the company," Hao said. "We are highly confident in welcoming the arrival of a new era of robots." Tyler Durden Fri, 07/31/2026 - 13:25

Tesla had already reportedly prepped for the idea in the event that Beijing invades Taiwan.

The Wall Street Journal reports some Tesla executives have been told to prepare for a separation of the company's China operations

Tesla is weighing whether to sell, spin off, or shut down its China business to clear a path for a possible merger with SpaceX, according to a Wall Street Journal report that Elon Musk has publicly and flatly denied. The move would untangle Tesla’s vast Chinese manufacturing from a defence contractor whose Beijing exposure has […] This story continues at The Next Web

Tesla is reportedly preparing to separate its China operations from the rest of the company, a move that could clear the path for a potential merger with Elon Musk's other trillion-dollar venture, SpaceX, according to a report by the Wall Street Journal. Musk has since dismissed the claims outright, calling them fabricated.Tesla executives, according to the report, have been instructed to prepare for an actual separation of the company's China business, with advisers reportedly discussing multiple options, including a spinoff, an outright sale, or winding the operation down entirely. Citing a person familiar with the internal talks, the report said executives have also discussed setting up an independent sales entity to manage exports out of the Shanghai Gigafactory, along with strict internal firewalls limiting how much access China-based employees have to other parts of the company. According to the report, Musk had reportedly instructed Tesla executives years ago to build what was described as a 'laser' separation between the company's American and Chinese operations, though it remains unclear how quickly any formal separation could actually happen, or whether the plans could still change.Why SpaceX is part of the storyThe China angle matters because of Musk's other company. SpaceX is a major US defense contractor, drawing 20.9 percent of its 2025 business from American government contracts, including classified programs, according to the report. A merger between Tesla and SpaceX would therefore raise serious geopolitical and regulatory complications, since SpaceX's deep ties to US national security work sit uneasily alongside Tesla's wholly owned manufacturing presence in China, its second largest market globally after the United States. Analysts at JPMorgan have separately flagged what they called practical regulatory bottlenecks standing in the way of any such combination, particularly given China's scale in Tesla's business, where the Shanghai plant alone is responsible for more than half of all vehicles the company builds worldwide.Musk pushes back hardResponding on his social media platform X, Musk rejected the report entirely. "This has never even come up in a discussion ever," he wrote. "Absurdly fake news. People should assume news is fake until proven otherwise."Tesla's China team also denied the claims, and neither Tesla nor SpaceX responded to requests for comment from Reuters outside regular business hours.Despite the denial, Tesla shares climbed 3.5 percent in after-hours trading to touch $320, suggesting investors may be reading the report as fresh evidence that a Tesla-SpaceX combination is inching closer, denial notwithstanding. The speculation is not entirely new. Earlier this month, Musk had already left the door open to a potential merger between the two companies during Tesla's second quarter earnings call, pointing to what he called growing overlap between the businesses, without committing to specifics or timelines. China currently accounts for around 18 percent of Tesla's total sales, with the Shanghai operations run by senior executive Tom Zhu, who also oversees Tesla's global automotive business.

The Wall Street Journal reported that Tesla is preparing to separate its China business ahead of a potential merger with SpaceX.