Musk denies report of Tesla China unit sale ahead of SpaceX merger

TESLA is weighing a potential separation of its China business to pave the way for a possible merger with SpaceX, the Wall Street Journal reported. 

Some Tesla executives have been told to prepare for the move, the Journal said, citing a person familiar with the talks.

Tesla advisers have discussed options including a spinoff, sale or closure of the China business, according to another person familiar with the situation, the outlet said. 

Tesla chief executive officer Elon Musk said in a social media post on X that the report was “fake news”. Separately, a Tesla China representative said it was “false information”.

Separating Tesla’s China operations – which include a key plant in Shanghai that churns out more than half the automaker’s global production – would be a necessary move before any merger given SpaceX’s work as a major US defence contractor and critical role in Nasa’s project to return humans to the moon. 

But it would be a complex undertaking. The auto factory is deeply embedded in China’s vast electric vehicle (EV) supply chain and has allowed Tesla to lower costs, expand production capacity and supply vehicles to markets worldwide.

China also remains Tesla’s largest single market outside the US in terms of revenue and the Asian country is one of the world’s most important battlegrounds for EVs, batteries and autonomous driving technologies.

The industrial reliance extends beyond cars. Tesla also has a battery storage plant in Shanghai which serves as high-margin hub to export units to Europe, Asia-Pacific and the Middle East.

A similar dynamic governs its next-generation hardware: while the artificial intelligence models for Tesla’s robotaxis and Optimus humanoid robots are developed in the US, their physical hardware relies heavily on China’s precision-manufacturing ecosystem.

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Any attempt to spin off Tesla China would also face significant regulatory hurdles.

A deal requires approval from multiple authorities and could involve negotiations over manufacturing licences, land agreements, supply relationships, employment commitments and data regulations.

It could also potentially anger Chinese officials, who gave Tesla a red-carpet welcome when it granted the carmaker approval to build its Shanghai factory.

It was the first international carmaker to operate without having to form a joint venture with a local manufacturer – an exception not granted to the likes of Volkswagen or General Motors.

That has helped Tesla gain a strong foothold in the world’s biggest auto market, while legacy rivals such as Volkswagen and BMW struggle. 

Merger speculation

Speculation has mounted that Musk would move to merge the two companies since Space Exploration Technologies, as SpaceX is formally known, listed in June given their shared ambitions in AI.

Musk has pinned Tesla’s future on perfecting autonomous driving, expanding its nascent robotaxi ride-hailing business, launching its driverless Cybercab and rolling out its humanoid Optimus robot. 

SpaceX already acquired Musk’s AI company, xAI – now SpaceXAI – in February.

And SpaceX and Tesla already do business together: Tesla sells megapack batteries and Cybertrucks to SpaceX, while the AI chatbot Grok is available in some Tesla vehicles.

During an earnings call last week, Musk, who has spoken about the “convergence” of his companies in the past, acknowledged their increasing overlap, but said a merger was not something he could address on Tesla’s conference call. 

In further signs Musk may be looking to untangle his ties to China, Nikkei Asia earlier this week reported SpaceX is taking aggressive measures to ensure there is no Chinese influence on its operations or supply chains to safeguard the production of technologies critical to US national security. 

The rocket maker has sent teams to audit existing and prospective suppliers and is instructing partners across its global supply chain not to assign or employ Chinese nationals at facilities producing products for SpaceX, or to use systems or equipment made by Chinese companies, the report said. BLOOMBERG