Elon Musk dismissed as “absurdly fake news” a Wall Street Journal report that Tesla executives have been told to prepare a separation of the company’s China business ahead of a potential merger with SpaceX.
“This is fake news,” Musk wrote on X late on Thursday, following an hour later with a second post: “This has never even come up in a discussion ever. Absurdly fake news.”
Tesla‘s China unit separately told Chinese outlets including The Paper and National Business Daily that the report is “false information.”
What the Journal Reported
Citing people familiar with the planning, the Journal reported that Musk instructed Tesla executives in recent years to organize the company with a “laser” between its US and China businesses, so that the American half would survive geopolitical strife between the two countries.
According to the report, Musk worried in particular about Tesla‘s dependence on China for lithium-iron-phosphate battery cells and on Taiwan Semiconductor Manufacturing for chips.
The Journal said some executives have now been told to prepare for a separation of the China business ahead of a potential merger, with advisers discussing a spinoff, a sale or a closure.
Executives have also reportedly discussed a separate sales entity to handle exports from Shanghai, separate office systems, and barring China-based employees’ direct access to other company units.
The report acknowledged the entanglement runs deep: Tesla‘s top executive in China, Tom Zhu, oversees the company’s entire global automotive business, and employees largely work together across regions.
The SpaceX Logic
The separation, per the Journal, would address conflicts arising from SpaceX’s position as a major US defense contractor.
A merged company would place Tesla‘s Chinese factories under a US defense contractor.
The Journal reported Beijing would likely respond with intense scrutiny.
Concerns cited include the factories’ know-how and supply chain being repurposed for the US military, the data of roughly two million Chinese Tesla owners passing to an American defense company, and demands for guardrails against the diffusion of dual-use goods such as rare-earth materials from Tesla China to SpaceX.
What Would Be Given Up
The unit under discussion is not a struggling one — but its role is changing.
Tesla operates Gigafactory Shanghai, China’s first wholly foreign-owned car plant, with Model 3 and Model Y capacity above 950,000 vehicles a year and the Model Y L built exclusively there, alongside a separate Megafactory producing Megapack storage units.
China generated $4.675 billion of Tesla‘s $28.236 billion second-quarter revenue, about 16.6%, its second-largest market — and, unusually for a Western automaker, the operation carries no joint-venture partner.
The plant’s momentum is real but increasingly outward-facing.
Shanghai wholesale volumes rose 24.4% year over year in June, an eighth consecutive month of growth, and climbed 32.8% in the second quarter — yet the growth is exports: shipments from Shanghai to other markets exceeded domestic Chinese deliveries in the quarter for the first time, while China’s share of Tesla‘s global deliveries slipped below 30% for the first time since late 2020.
Shanghai is becoming less a China sales story and more the company’s low-cost export engine — the asset a separation would sever from the US business.
Tesla recently integrated ByteDance’s Doubao large language model as the voice assistant in its China vehicles — a Chinese AI model running in the cars of a company whose proposed merger partner launches classified US satellites.
Tesla x SPaceX
Asked on Tesla‘s second-quarter call on 22 July about synergies from combining the companies, Musk pointed to “more and more overlap” — “especially with Terafab, that’s really going to be a gigantic project” — before adding: “Obviously we can’t talk about, you know, combining companies and that kind of thing on earnings calls. It’s got to be done with the appropriate process.”
General counsel Brandon Ehrhart followed by citing the investment and framework agreement that deepened the relationship this year — though SpaceX’s IPO prospectus described only “a general framework” for the Terafab chip venture, with specific projects subject to separate negotiations.
Tesla‘s roughly $2 billion investment in xAI converted into SpaceX shares — a stake under 1% — after SpaceX absorbed the AI company, and SpaceX and xAI entities purchased about $650 million in goods and services from Tesla in 2025, including Megapacks and Cybertrucks, with Grok integrated into Tesla vehicles and Starlink slated for robotaxi connectivity.
SpaceX raised about $86 billion in June in a record-setting public offering, and president Gwynne Shotwell said on IPO day that a combination “might make Elon’s life a little easier,” with “no question that there are synergies” — while stressing her own focus remains rockets, Starlink and production rather than near-term dealmaking.
Wedbush’s Dan Ives has put the odds of a merger by 2027 at 80% or higher, writing that the groundwork is already in place.
