The Wall Street Journal reports some Tesla executives have been told to prepare for a separation of the company's China operations
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Tesla $TSLA is weighing options to separate its China business — including a sale, spinoff, or closure — as it prepares for a potential merger with SpaceX, according to the Wall Street Journal. A person familiar with the discussions said certain Tesla executives received instructions to ready themselves for the China split in anticipation of a potential merger, while a separate individual told the paper that Tesla advisers had weighed an array of possible paths forward.
Elon Musk, who serves as chief executive of both Tesla and SpaceX, denied the report on his X $TWTR social media platform on Thursday, calling it "absurdly fake news" and saying the topic had never come up in any discussion. A Tesla China representative separately called the report "false information," according to Bloomberg.
The core complication driving the reported discussions is SpaceX's role as a major U.S. defense contractor. SpaceX's government work includes putting classified payloads into orbit and running internet connectivity in active war zones, and the Journal noted that U.S. government contracts accounted for approximately 20.9% of the company's revenue in 2025. Combining SpaceX with a company that operates factories in China would likely draw intense scrutiny from Beijing, which could seek guarantees that SpaceX's influence over Tesla's Chinese operations would be limited.
The Shanghai facility is Tesla's biggest and highest-output factory anywhere in the world, responsible for over half of all vehicles the company delivers globally and functioning as a key shipping point for customers in Europe, Canada, and the Asia-Pacific region. China made up roughly 18% of Tesla's sales in the first half of 2026. Where many of its Western peers have had to share ownership of their Chinese factories with domestic companies, Tesla holds its manufacturing operations there outright.
The Journal reported that over recent years Musk pushed Tesla executives to build a sharp structural boundary separating the company's American and Chinese operations, driven by anxiety over what would happen to Tesla's supply of batteries from Chinese vendors and chips from Taiwan if relations between the two countries broke down into open conflict.
Speculation about a Tesla-SpaceX merger has grown since SpaceX completed its IPO in June, raising $75 billion — the largest public offering on record. SpaceX President Gwynne Shotwell declined to rule out a merger on the day of the IPO, saying the two companies share overlapping goals. Speaking to investors on Tesla's most recent earnings call, Musk stopped short of dismissing a merger, noting that any such combination would have to follow proper procedures rather than be hashed out on a conference call.
The two companies already have deep commercial ties. Tesla has sold roughly $890 million worth of vehicles and batteries to SpaceX and its subsidiary xAI since 2023. Tesla also holds a stake in SpaceX, and the two companies are collaborating on a chip manufacturing initiative called Terafab.
Tesla stock was up about 2% in premarket trading following the report.
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