By Rajwa Quasim
Tesla is reportedly considering selling its China business ahead of a potential merger with SpaceX, The Wall Street Journal reported, citing people familiar with the discussions. CEO Elon Musk denied the report in a post on X, writing, “This has never even come up in a discussion ever… Absurdly fake news.” Despite the denial, Tesla shares rose about 2% in premarket trading.
According to the newspaper, “some Tesla executives have been told to prepare for a separation of the China business,” which could involve a “spinoff, sale or closure,” citing unnamed sources.
READ: Tesla faces lawsuit after fatal Texas autopilot crash (June 24, 2026)
Tesla’s Shanghai Gigafactory is a cornerstone of the company’s global manufacturing operations. The facility produces more than half of all Tesla vehicles worldwide and serves as a major export hub. China is Tesla’s second-largest market after the United States, although the company faces intense competition from domestic electric vehicle makers. Tesla sources more than 95% of the components for its China-made vehicles locally, relying on an extensive network of Chinese suppliers. The factory has an annual production capacity of more than 950,000 vehicles, many of which are exported to Europe, Canada, and the Asia-Pacific region.
The Shanghai Gigafactory manufactures the Model 3 and Model Y at Tesla’s lowest production cost, supported by more than 400 domestic suppliers. Deliveries of the two models rose 24.4% from a year earlier, while second-quarter sales and exports from the factory increased 32.8%.
A merger between Tesla and SpaceX would likely face significant regulatory scrutiny because of SpaceX’s extensive work with the U.S. military and intelligence agencies. Given the strained relationship between Beijing and Washington, continued ownership of Tesla’s major operations in China could complicate such a deal.
Rumors of a Tesla-SpaceX merger are not new, but speculation intensified following SpaceX’s record $75 billion initial public offering (IPO) last month.
SpaceX is valued at roughly $1.48 trillion, while Tesla has a market capitalization of about $1.22 trillion. Musk has also declined to rule out the possibility of a merger, saying the two companies’ businesses are becoming increasingly intertwined.
Analysts at JPMorgan have flagged the “practical bottleneck” of securing regulatory approval for such a merger, particularly because of Chinese concerns over SpaceX’s contracts with the U.S. government.
READ: Tesla driver assistance probe closed after minor crash findings (April 7, 2026)
SpaceX President and Chief Operating Officer Gwynne Shotwell acknowledged the potential benefits of such a combination, saying “the merger might make Elon’s life a little easier” by streamlining management across his businesses.
According to The Wall Street Journal, executives have also discussed creating a separate sales entity to handle exports from Tesla’s Shanghai factory. The report added that Tesla could establish separate office systems and restrict China-based employees from directly accessing other parts of the company’s operations.