Musk Denies Report That Tesla Is Weighing a Sale of Its China Business Ahead of a SpaceX Merger Deal

Tesla is weighing options to separate its China business, including a possible sale, spinoff or closure, as part of preparations for a potential merger with SpaceX, The Wall Street Journal reported Thursday, citing people familiar with the discussions. Elon Musk, who serves as chief executive of both companies, quickly and publicly disputed the report.

According to the Journal, certain Tesla executives have been instructed to prepare for a separation of the company's China operations in anticipation of a possible merger, while a separate person familiar with the matter said Tesla advisers had examined a range of potential paths forward for the business. Musk pushed back forcefully on social media platform X on Thursday, calling the report "absurdly fake news" and writing, "This has never even come up in a discussion ever." Despite Musk's denial, Tesla shares rose approximately 2% in premarket trading following the report.

The rationale behind a potential China separation centers on regulatory complications that would arise from combining Tesla with SpaceX, a major U.S. defense contractor with extensive classified government relationships. Merging the two companies would likely draw intense scrutiny from Beijing, which could seek guarantees limiting SpaceX's influence over Tesla's Chinese operations, given the sensitivity surrounding a defense contractor gaining commercial ties to the world's second-largest economy.

Tesla's Shanghai Gigafactory represents the company's largest and highest-output manufacturing facility anywhere in the world, producing more than half of all vehicles Tesla delivers globally and serving as a key export hub for customers across Europe, Canada and the Asia-Pacific region. China accounted for roughly 18% of Tesla's total sales during the first half of 2026. Unlike many of its Western competitors, which have been required to share ownership of their Chinese manufacturing operations with domestic partners, Tesla holds its Shanghai operations outright, without a joint-venture structure.

According to the Journal's reporting, Musk had pushed Tesla executives in recent years to build a clear structural boundary separating the company's American and Chinese businesses, a strategy driven by concerns about what might happen to Tesla's supply chains if geopolitical tensions between the U.S. and China escalated further, particularly over Taiwan. Musk was reportedly concerned that a Chinese move against Taiwan could disrupt Tesla's access to chips from Taiwan Semiconductor Manufacturing Co., along with worries about the company's reliance on Chinese-sourced battery materials. People familiar with the planning said the internal goal was to have that structural separation largely in place by 2026 or 2027. Tesla began requiring suppliers to eliminate China-made components from vehicles built at its U.S. factories last year, citing tariffs and broader geopolitical tensions, an effort aimed at fully transitioning the company's U.S. manufacturing away from Chinese-sourced parts within one to two years.

Speculation about a potential Tesla-SpaceX merger has circulated for years without Musk ever formally committing to such a plan, though he has repeatedly declined to rule out the possibility. Musk addressed the merger speculation directly during Tesla's most recent quarterly earnings call, telling investors the company was not able to discuss combining businesses in that particular setting. He has separately said the two companies' operations are becoming increasingly intertwined, citing growing commercial ties between them. In 2025, SpaceX purchased $147 million worth of goods and services from Tesla, while xAI, the artificial intelligence company that merged with SpaceX earlier this year, purchased $506 million from Tesla during the same period and an additional $303 million between January and April 2026, including $269 million specifically for Tesla's Megapack battery systems.

Analysts at JPMorgan have identified regulatory approval as the central practical obstacle facing any potential Tesla-SpaceX combination, pointing specifically to Chinese government concerns over SpaceX's extensive contracts with the U.S. government as a key sticking point that would need to be resolved before such a merger could move forward. SpaceX currently carries a valuation of roughly $1.48 trillion, following its recent initial public offering, while Tesla's market capitalization stands at approximately $1.22 trillion.

A Tesla China representative separately pushed back on aspects of the Journal's reporting, according to coverage of the story, though the company has not issued a formal, detailed statement addressing the specific claims about executive instructions or the range of separation options under consideration. Neither Tesla nor SpaceX has publicly confirmed any formal merger discussions, and no timeline, deal structure or buyer for a potential China business separation has been established.

The reported consideration of separating Tesla's China operations comes as Musk has more broadly signaled interest in consolidating his various companies into a more unified technology platform, with separate reports indicating SpaceX has also discussed a potential merger with xAI ahead of a possible initial public offering later this year, alongside the continuing speculation about a Tesla combination. With Tesla's China business serving as both the company's second-largest sales market and its largest global vehicle production hub, any move to separate that operation would represent a significant structural shift for the company regardless of whether it ultimately proceeds as part of a broader merger with SpaceX.