Elon Musk may be laying the groundwork for one of the biggest corporate restructurings in technology. A new report claims Tesla has explored ways to separate its China business, a move that could remove one of the biggest obstacles to a future merger with SpaceX. Musk quickly pushed back, calling the report “absurdly fake news.” The clash between the report and Musk’s denial has put fresh attention on a question that has lingered for years: could two of Musk’s most valuable companies eventually become one?
According to a report from The Wall Street Journal, Tesla has examined options that include selling, spinning off, or even shutting down its China operations if geopolitical tensions make a split necessary. Reuters later reported that Musk dismissed the story on X, writing: “This has never even come up in a discussion ever,” before adding that it was “Absurdly fake news.”
“Musk in recent years instructed Tesla executives to organize the company with a “laser” between its U.S. and China businesses,” the Wall Street Journal reported, citing people familiar with the planning.
The report claims Musk instructed Tesla executives over the past several years to organize the company’s U.S. and China operations with what he described as a “laser” separating the two businesses. The goal, according to people familiar with the planning, was to make Tesla more resilient if relations between Washington and Beijing deteriorated.
That structure could carry another advantage.
If Musk ever combines Tesla with SpaceX, separating Tesla’s China operations could ease one of the biggest regulatory challenges. SpaceX is deeply involved in U.S. national security programs, satellite communications, and defense contracts. Tesla, by contrast, operates one of the largest foreign-owned manufacturing facilities in China and relies heavily on the country for production and sales.
Those two realities have long raised questions about whether regulators in both countries would allow the businesses to merge under one corporate umbrella.
SpaceX merger speculation returns
The idea of combining Tesla and SpaceX has circulated for years, though Musk has never committed to such a plan. Interest intensified during SpaceX’s recent $75 billion initial public offering process, which renewed debate over whether closer ties between the companies would unlock new efficiencies, Reuters reported.
Musk added fuel to that discussion last week when he declined to rule out a future merger, saying the overlap between Tesla and SpaceX continues to grow.
SpaceX President and Chief Operating Officer Gwynne Shotwell echoed that view during an interview with CNBC in June, saying bringing the companies together “might make Elon’s life a little easier” by simplifying management across his businesses.
JPMorgan analysts remain skeptical that such a transaction could win approval. They have pointed to China as one of the biggest hurdles, citing SpaceX’s close relationship with the U.S. government and its national security work.
Why Tesla’s China business matters
China is far more than another market for Tesla.
Gigafactory Shanghai is the company’s largest manufacturing facility and one of its most efficient. The factory produces the Model 3 and Model Y for customers across China, Europe, Canada, and much of the Asia-Pacific region. Its annual production capacity exceeds 950,000 vehicles, and the plant has historically accounted for more than half of Tesla’s global deliveries.
Tesla has spent years building an extensive local supply chain. Company executives have said more than 95% of components used in China-built Model 3 and refreshed Model Y vehicles come from domestic suppliers. More than 400 Chinese companies supply Tesla’s Shanghai operation, with dozens serving Tesla’s global manufacturing network.
The facility remains a bright spot for the automaker. Deliveries of China-made Model 3 and Model Y vehicles climbed 24.4% year over year in June. Second-quarter vehicle sales and exports from Shanghai rose 32.8%.
Those numbers highlight why any decision involving Tesla’s China business would carry enormous financial consequences.
Preparing for geopolitical uncertainty
The Wall Street Journal also reported that Tesla executives have explored ways to make the company’s China operations function more independently. Discussions reportedly included creating separate systems for exports, isolating office infrastructure, and limiting direct access between employees in China and teams elsewhere in the company.
Unlike many global automakers operating in China, Tesla owns its Chinese manufacturing business outright rather than through a joint venture with a local partner. That ownership structure could make a future separation more practical, though no decision has been announced.
The planning reflects a broader trend across multinational companies. Rising geopolitical tensions have pushed many businesses to rethink supply chains, ownership structures, and operational risks tied to the world’s two largest economies.
Musk rejects the report
Musk’s response leaves investors with two competing narratives.
On one side is The Wall Street Journal’s reporting, which cites people familiar with internal discussions about contingency planning. On the other is Musk’s direct public denial, stating the topic “has never even come up in a discussion ever.”
Tesla and SpaceX have not announced any plans to merge, and neither company has publicly confirmed discussions about selling or spinning off Tesla’s China business.
For now, the report has revived a long-running debate over how Musk’s companies could evolve as geopolitical tensions reshape global business. Whether those conversations are active inside Tesla or remain speculation, one fact stands out: any future deal linking Tesla and SpaceX would face scrutiny that extends far beyond financial markets, reaching regulators, national security officials, and governments on both sides of the Pacific.
