Tesla Denies Plans to Sell China Business for SpaceX Merger

What happened

The Wall Street Journal published a report claiming Tesla executives had been instructed to develop plans for either selling or spinning off the company's China operations. The report suggested this move would aim to reduce regulatory roadblocks associated with a potential merger between Tesla and SpaceX. According to the article, Musk had structured Tesla's Chinese operations with the possibility of easy separation in mind, serving as a hedge against escalating geopolitical tensions between the United States and China. Elon Musk quickly responded on X, stating: 'This has never even come up in a discussion ever. Absurdly fake news.' Tesla's China operations include a significant electric vehicle manufacturing plant and a battery-packaging Megapack factory. The company's China division accounts for roughly 20% of its vehicle sales while producing around half of its vehicles.

Why it matters

The report and subsequent denial highlight ongoing speculation about a potential Tesla-SpaceX merger, which would create a massive multi-trillion-dollar entity with consolidated interests in AI, transportation, and space. SpaceX operates as a major national security contractor for the U.S. government, which would subject Tesla's Chinese business relationships to intense scrutiny from American regulators. Any potential combination would also likely face substantial review from Chinese authorities. The two companies have been establishing increasingly close operational ties, collaborating on a joint venture to construct what would become the world's largest semiconductor factory. Both organizations regularly purchase products from one another, and Tesla holds a $2 billion stake in SpaceX that has appreciated to a current value of $3 billion. SpaceX closed with a market capitalisation of $1.49 trillion, only marginally above Tesla's $1.18 trillion market value.

Bigger picture

The speculation reflects broader challenges facing global technology companies operating across geopolitical fault lines. Musk has demonstrated a willingness to consolidate his business empire in the past-SpaceX acquired xAI in February, which had previously absorbed Musk's social media platform X. Both Tesla and SpaceX are betting big on artificial intelligence, which is capital-intensive and often involves constructing data centres, supercomputers, and supporting infrastructure. Combining the companies could streamline AI efforts and improve access to capital. However, Musk only controls around 20% of Tesla's voting power compared to more than 80% of SpaceX's voting power, meaning a merger structure could potentially give him greater control over a combined entity. During Tesla's recent earnings call, Musk acknowledged limitations on discussing potential combinations, saying such matters must be handled 'with the appropriate process.'

What to watch

Watch for any formal announcements or regulatory filings related to restructuring Tesla's China operations or merger discussions. Monitor how Tesla's relationship with Chinese regulators evolves, particularly regarding manufacturing and export operations. Pay attention to further operational ties between Tesla and SpaceX, including their joint semiconductor factory project. Track any changes in Musk's public statements about potential combinations or corporate restructuring. Observe regulatory responses from both U.S. and Chinese authorities to any concrete merger proposals.