Tesla is considering a separation of its China business to prepare for a potential merger with SpaceX, a move that would untangle its massive Shanghai operations from a major defense contractor, according to a Wall Street Journal report. Elon Musk has publicly dismissed the report as fake news.
Some Tesla executives have been told to prepare for the move, according to a person familiar with the talks, while advisers have discussed options including a spinoff, sale, or closure of the China division.
The reported restructuring underscores the complex corporate architecture binding Elon Musk’s industrial empire. Musk designed Tesla’s China business to be easily separated from its U.S. operations because of geopolitical tensions, and instructed executives to maintain a strict operational divide between the regions to ensure the U.S. half would survive in the event of bilateral strife, according to people familiar with the planning.
Elon Musk and Representatives Deny the Deal
Chief Executive Officer Elon Musk responded to the reporting with a blunt denial on social media. Writing on X, he dismissed the account entirely, stating This has never even come up in a discussion ever. Absurdly fake news,
as reported by The Next Web. A Tesla China representative similarly characterized the reports as false information
, businesstimes.com.sg.
Despite the public rebuttal, prediction markets continue to price in merger prospects. The market pricing for a merger announcement by December 31 remains at 25.5% YES, showing little immediate change following the denial, as noted by Crypto Briefing.
Giga Shanghai as a Manufacturing and Strategic Anchor
Gigafactory Shanghai serves as Tesla’s global production engine. Opened in October 2019 as China’s first wholly foreign-owned car plant, it has grown into the company’s largest and most productive site globally, according to Reuters. The facility produces the Model 3 sedan and Model Y SUV, maintaining an annual production capacity of more than 950,000 vehicles.
The site accounted for more than half of Tesla’s global vehicle deliveries in 2025, Grace Tao, Tesla vice president in charge of external relations in China, has stated. The plant also houses a battery storage facility that exports high-margin units to Europe, Asia-Pacific, and the Middle East, businesstimes.com.sg. Tesla sources more than 95% of components for its China-built vehicles locally through a network of over 400 domestic suppliers, with more than 60 of those suppliers also supporting Tesla’s global operations.
Regulatory Hurdles and National Security Pressures
The primary obstacle to any combination of Tesla and SpaceX involves regulatory oversight and national security. SpaceX is a major U.S. defense contractor and a critical partner in NASA’s project to return humans to the moon. Folding a massive Chinese manufacturing footprint into a defense contractor would trigger intense scrutiny from Washington, according to analysis from The Next Web.
JPMorgan analysts flagged a practical bottleneck
in securing approvals for any merger, particularly in China, where national-security concerns regarding SpaceX’s U.S. government ties could stall a transaction. Beijing holds substantial leverage over Tesla through its unique position as the operator of a wholly foreign-owned auto factory, and authorities are unlikely to wave through a restructuring without extensive negotiations over manufacturing licenses and supply agreements, businesstimes.com.sg.
Convergence Across Musk’s Corporate Empire
Talk of a merger between Tesla and SpaceX has intensified since SpaceX listed in June. During a recent earnings call, Musk spoke of more and more overlap, especially with Terafab
before deferring to the company’s general counsel regarding appropriate corporate procedures, noted industry reports.
The operational ties between Musk’s enterprises continue to expand. SpaceX acquired Musk’s AI venture, xAI, in February. Tesla currently supplies megapack batteries and Cybertrucks to SpaceX, while the Grok artificial intelligence assistant is integrated into select Tesla vehicles, according to financial reporting.
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