Tesla Reportedly Weighs Selling China Business to Clear Path for SpaceX Merger, Musk Calls It Fake News

Tesla is reportedly examining whether to cut loose its entire China operation, a move that could clear the biggest obstacle standing between Elon Musk and a merger of Tesla with SpaceX, according to The Wall Street Journal.

The Journal reports, citing people familiar with the matter, that Tesla advisers have discussed several options: a spinoff, an outright sale, or simply winding the China business down. Some Tesla executives have reportedly been told to prepare for a separation. Nothing has been finalized, and the Journal notes how fast Tesla could actually move remains unclear.

Musk denied the story directly. "This has never even come up in a discussion ever. Absurdly fake news," he wrote on X. Tesla and SpaceX did not respond to requests for comment from the Journal or from Electrek.

Why China is the sticking point

SpaceX is one of the U.S. government's most important defense and space contractors. That status comes with strict national security and export-control rules, including limits on foreign ownership and involvement in sensitive operations.

Tesla's Shanghai Gigafactory produces more than half of all Tesla vehicles worldwide, according to Electrek, and Tesla's own China chief has said the plant accounts for more than half of the company's global deliveries. The factory has annual capacity above 950,000 vehicles and exports across Europe, Canada and the Asia-Pacific region, according to americanbazaaronline. Tesla sources more than 95% of components for its China-made vehicles from a network of more than 400 domestic suppliers.

Folding that manufacturing footprint into a company with extensive Pentagon and intelligence-community contracts would almost certainly draw scrutiny from Washington. Senators have already asked the Pentagon to examine foreign, including Chinese, ownership stakes tied to SpaceX, according to Electrek. Chinese regulators, for their part, may be reluctant to let a U.S. defense contractor oversee Tesla's manufacturing, technology and customer data inside China, ZeroHedge reported.

Musk has been preparing for this for years

According to the Journal's sourcing, Musk instructed Tesla executives years ago to build a "laser" separation between the company's U.S. and China operations, specifically to protect the American half of the business if relations between Washington and Beijing deteriorated, particularly over Taiwan. That contingency planning is reportedly what makes a fast separation possible now.

JPMorgan analysts have flagged regulatory approval as a practical bottleneck for any Tesla-SpaceX combination, largely because of Chinese-government sensitivities around SpaceX's U.S. contracts, according to americanbazaaronline.

The merger talk isn't new, and Musk keeps feeding it

Musk has floated the Tesla-SpaceX crossover for months without ruling it out. On Tesla's second-quarter earnings call last week, he told investors there's "more and more overlap, especially with Terafab," before catching himself: "we can't talk about combining companies. It's got to be done with the appropriate process." He then handed the question to Tesla's general counsel, Brandon Ehrhart, according to Electrek.

SpaceX President and Chief Operating Officer Gwynne Shotwell has also acknowledged the potential benefits, saying a merger might make "Elon's life a little easier" by streamlining management across his businesses, according to americanbazaaronline.

Speculation intensified after SpaceX's record-setting IPO last month, which the Journal and Jalopnik put at $86 billion raised and americanbazaaronline put at $75 billion, valuing SpaceX at roughly $1.48 trillion against Tesla's roughly $1.22 trillion market cap.

The fair skeptical read

Musk's denial deserves to be taken at face value until proven otherwise: he has flatly said the discussion never happened. Anonymous-sourced reports about internal corporate planning are hard to verify from the outside, and the Journal itself says nothing is locked in. Electrek's own framing that Musk's denial "should be taken with a grain of salt" is an editorial judgment, not a fact. The same skepticism could cut either way.

Still, the market didn't shrug off the story. Tesla shares rose about 2% in premarket trading despite Musk's denial, according to americanbazaaronline, suggesting investors see something to the reporting or at least like the idea of a SpaceX tie-up regardless of the China wrinkle.

What happens next is straightforward to watch for: whether Tesla creates a separate export entity for Shanghai-built vehicles, whether any Tesla executives publicly confirm restructuring talks, and whether Congress presses further on foreign ownership questions tied to SpaceX following the senators' request to the Pentagon. None of that has happened yet. As of today, no formal Tesla board decision, spinoff filing, or merger proposal has been announced.