A Look at tesla weighs sale of China business to clear path for SpaceX merger, report says
- Some Tesla executives have been told to prepare for a separation of the China business, according to the Wall Street Journal.
- Advisers have discussed several options, including a spinoff, sale or closure.
Tesla (NASDAQ: TSLA) is weighing a separation of its China business to clear the way for a potential merger with SpaceX (NASDAQ: SPCX), the Wall Street Journal reported on Thursday.
Some Tesla executives have been told to prepare for a separation of the China business ahead of a potential merger, the report said, citing people familiar with the matter.
Tesla’s advisers have discussed several options, including a spinoff, sale or closure. It is unclear how quickly the plan could move forward, and it may change, according to the report.
In recent years, Tesla CEO Elon Musk instructed executives to organize the company with a “laser” between its US and China businesses. The goal was to ensure that at least the US half of Tesla would survive in the event of geopolitical strife between the two countries.
Musk was particularly concerned about Tesla’s dependence on China for lithium iron phosphate (LFP) battery cells, as well as the risk that a conflict over Taiwan could cut off its chip supply, the people said. The preparations were aimed at 2026 or 2027.
Local Chinese media outlet Yicai later cited an insider at Tesla China as saying the report was untrue, without giving further details.
The biggest obstacle to a merger is what SpaceX is. The company is a major US defense contractor, with business lines that include launching top-secret satellites and operating internet services in war zones such as Ukraine. Sales to the US government made up 20.9% of its business in 2025, the Wall Street Journal noted.
That means a major US defense contractor would directly control Tesla’s factories in China. Another concern for Beijing is that a deal could put the data of about 2 million Tesla owners in China in the hands of an American defense company, the report said.
Executives have also discussed creating a separate sales entity to handle exports from the Shanghai plant, along with separate office systems that would bar China-based employees from directly accessing other company units.
Any separation would have a profound impact on Tesla. It was the China business that turned Tesla into a consistently profitable global mass-market EV leader, and it could also shape the valuation in a merger.
Giga Shanghai is Tesla’s largest and most productive plant globally, with annual capacity of about 1 million vehicles, and serves as its export hub for Europe and the Asia-Pacific region.
Unlike most foreign automakers, Tesla’s vehicle business in China is not structured as a joint venture. It is China’s first automotive business wholly owned by foreign capital and is regarded as a new chapter in China’s market opening up.
The plant’s depth of local sourcing would also be hard to replicate. Tesla said more than 95% of the parts in the China-made Model 3 and the Model Y are sourced locally, backed by over 400 domestic suppliers.
Tesla’s sales in China has bees weak this year. In the second quarter, Tesla delivered 126,157 vehicles in the country, down 2.05% year on year, accounting for just 26.28% of its global deliveries. That was the first time the share fell below 30% since the fourth quarter of 2020.
2024
2025
Meanwhile, Giga Shanghai exported 128,394 vehicles in the second quarter, exceeding its China deliveries in a single quarter for the first time. The plant is increasingly shifting toward an export role.
SpaceX completed a record IPO last month, raising about $75 billion, and was valued at $1.48 trillion as of Thursday's close. Tesla has a market capitalization of $1.22 trillion.
Musk said on last week's earnings call that a merger "has got to be done with the appropriate process." SpaceX president Gwynne Shotwell told CNBC in June that combining the companies "might make Elon's life a little easier."
