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 become a regulatory headache, fitting a pattern in which merger talk has turned serious since SpaceX’s IPO.
The logic is about national security, not sales. SpaceX is one of Washington’s most important space and defence contractors, and any Chinese ownership tied to it draws intense scrutiny, so folding in Tesla’s China-heavy operations would raise obvious obstacles.
Tesla’s footprint there is enormous. Its Shanghai Gigafactory builds more than half of all Tesla vehicles worldwide, exports to Europe and Asia, and is widely regarded as the company’s fastest and cheapest plant.
That factory produced Tesla’s four-millionth China-made car in December, a milestone that underlines how central the country is to output. Separating it out would be one of the most consequential corporate surgeries the company has ever attempted.
The Journal said advisers had discussed three routes: a spin-off, an outright sale, or winding the operation down. It cautioned that nothing is locked in and the timeline is unclear.
Musk’s response was blunt. “This has never even come up in a discussion ever. Absurdly fake news,” he wrote on X, dismissing the report much as he has waved away other unflattering WSJ stories about his companies.
Yet the reporting is not entirely at odds with his own past instructions. Musk had previously told Tesla executives to keep the US and China divisions clearly separated, the paper said, to protect the American business in the event of geopolitical conflict.
Neither Tesla nor SpaceX responded to requests for comment, according to Reuters. That silence, set against Musk’s personal denial, leaves the market weighing a public rebuttal against detailed reporting.
The merger itself is no longer a fringe idea. Talk of combining Tesla and SpaceX has grown more concrete since the rocket company’s blockbuster listing, as Musk increasingly treats his ventures as one interlocking empire.
He hinted at that convergence on Tesla’s latest earnings call. Musk spoke of “more and more overlap, especially with Terafab” before stopping himself and deferring to the company’s general counsel, citing proper procedure.
The overlap runs through manufacturing and AI. Tesla’s push into robotics and self-driving, its Optimus programme, and SpaceX’s compute and satellite ambitions increasingly draw on shared engineering and capital.
Regulators are the sticking point. JPMorgan analysts flagged a “practical bottleneck” in securing approvals for any merger, particularly in China, where national-security worries about SpaceX’s US-government ties could stall a deal.
Beijing’s sign-off would matter as much as Washington’s. China holds leverage over Tesla through the Shanghai plant, and it is unlikely to wave through a restructuring that hands a strategic asset to a US defence contractor without extracting something in return.
For Tesla investors, the stakes are unusually high. The China business is both a crown jewel and a liability, and any attempt to detach it risks disrupting the very production engine that keeps Tesla’s margins competitive.
The consolidation drive is already visible elsewhere. Musk has been steadily pulling his companies closer, from absorbing SpaceX-linked startups to routing AI and chip work across the group, which makes a Tesla-SpaceX tie-up feel less like speculation than a matter of timing.
