Tesla is looking at cutting loose its China business to clear a path toward a merger with SpaceX, according to a new Wall Street Journal report.
If true, it would be a massive deal in the auto industry. Tesla’s Shanghai factory builds more than half of all Tesla vehicles, so any separation would carve out the single biggest piece of Tesla’s car operation.
What the report says
Citing a person familiar with the talks, the Journal said advisers have floated everything from a spinoff to an outright sale to simply winding the operation down. Nothing is locked in, according to the report, and how fast Tesla could actually move remains unclear.
Tesla and SpaceX didn’t respond to requests for comment.
The context is a merger Musk himself has been dangling for months. Earlier in July, he declined to shut down the idea of combining Tesla and SpaceX, pointing to what he called “more and more overlap” between his companies.
Musk teased the merger last week — then handed it to a lawyer
He went further on Tesla’s second-quarter earnings call last week. Asked about a combination, Musk said there’s “more and more overlap, especially with Terafab,” before pulling back: “we can’t talk about combining companies. It’s got to be done with the appropriate process.” He then handed the question to Tesla’s general counsel, Brandon Ehrhart.
So a CEO who won’t stop bringing up the merger suddenly couldn’t discuss it, and deferred to legal. Now, days later, we get a report that his team is already working out how to peel off Tesla’s China operation. Those two things are connected.
We also previously noted that Tesla avoided answering shareholder questions last week related to a potential merger with SpaceX.
Why China is the obstacle
The reason a merger runs into China is SpaceX. SpaceX is one of the US government’s most important defense and space contractors, and Chinese ownership stakes in the company are already under scrutiny in Washington, with senators asking the Pentagon to look into it.
Fold Tesla into that entity and you’ve bolted a massive Chinese manufacturing footprint onto a defense contractor. Giga Shanghai isn’t a side project. It produced Tesla’s 4 millionth China-built car in December, and Tesla’s own China chief has said the plant accounts for more than half of the company’s global deliveries. It exports to Europe and much of Asia on top of supplying the domestic market.
We’ve argued before that Tesla’s China business was one of the real structural obstacles to a SpaceX merger. We also said it wasn’t impossible to get around, given Musk’s political capital in Washington and his relationship with the Trump administration. A forced separation of the China business is one way to make the national-security problem disappear before anyone in Washington has to rule on it.
Electrek’s Take
A sale of the China business would still surprise me. Giga Shanghai is Tesla’s best factory. It builds cars faster and cheaper than anything Tesla runs in the US, it’s profitable, and it accounts for roughly half the vehicles Tesla makes. You don’t hand that off lightly.
But look at what selling it would actually mean. If Tesla offloads the operation that builds half its cars, that’s the final step in Musk truly walking away from the EV business. Tesla under Musk has spent the last two years reframing itself as an AI and robotics company that happens to sell cars. Selling the China business would take it from a reframing to a fact. What’s left after Shanghai is a smaller, more expensive, US-and-Berlin car operation wrapped inside a SpaceX-xAI holding company that is already worth more than Tesla.
And the timing tells you what this is really about. As I wrote after last week’s earnings call, a Tesla-SpaceX merger would be Musk’s fourth billion-dollar self-deal, with Musk sitting on both sides of the table. Restructuring Tesla’s manufacturing base to clear a regulatory path for that deal is a lot to ask of shareholders who own Tesla because it’s a carmaker. This is a report, not a decision, and the plans could change. But if it’s real, Tesla investors should be asking whether they’re being maneuvered into a very different company than the one they bought. And at what price?
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