Elon Musk rejects report of Tesla’s China business split plans ahead of possible SpaceX tie-up

Elon Musk has dismissed as “fake news” a media report claiming that executives at electric vehicle maker Tesla had been asked to prepare for a separation of the company’s China operations ahead of a potential merger with his space exploration company, SpaceX.

According to a Wall Street Journal report published on Thursday, Tesla advisers have explored several options for its China business, including a spin-off, sale, or even a shutdown. The report noted that no final decision had been made and that any restructuring plans could still change.

A potential merger between Tesla and SpaceX would likely face significant geopolitical and regulatory challenges, particularly in China. While SpaceX is a major U.S. defence contractor involved in national security and satellite programs, Tesla owns and operates manufacturing facilities in China, which makes any integration politically sensitive.

"This has never even come up in a discussion ever," Musk said on his X social media account in response to the report. "Absurdly fake news."

Tesla shares rose around 2% in premarket trading following the report and Musk’s response.

Market observers have long speculated about combining Musk’s electric vehicle and space businesses, with interest growing further during SpaceX’s record-breaking $75 billion initial public offering process.

Musk declines to rule out merging Tesla with SpaceX

Last week, Musk declined to rule out merging Tesla with SpaceX, saying the two companies are increasingly interconnected.

The Journal also reported that Musk had previously instructed Tesla executives to maintain a clear separation between the company's U.S. and China operations. The strategy was intended to ensure that American business could continue to function independently if geopolitical tensions between Washington and Beijing escalated.

Unlike many global automakers operating in China, Tesla owns its Chinese manufacturing business outright rather than through a joint venture with a local partner.

Tesla’s Gigafactory Shanghai remains the company's largest and most productive manufacturing facility, serving as its primary export hub for Europe, Canada, and several Asia-Pacific markets.

The plant has historically contributed more than half of Tesla’s worldwide vehicle deliveries and has an annual production capacity exceeding 950,000 vehicles.

Earlier this month, Musk again left open the possibility of combining Tesla and SpaceX, citing the growing overlap between the companies' technologies and operations.

Although Gigafactory Shanghai is a crucial export base, China is also Tesla’s second-largest market after the United States. However, the company continues to face stiff competition from domestic electric vehicle manufacturers, particularly BYD.

The Wall Street Journal said Tesla executives have also discussed establishing a separate sales entity to oversee exports from the Shanghai facility. The report added that the company could introduce separate office systems and restrict direct access between China-based employees and other Tesla divisions.

SpaceX President and Chief Operating Officer Gwynne Shotwell also acknowledged potential advantages of bringing the two companies together. Speaking to CNBC in June, she said such a move "might make Elon's life a little easier" by simplifying management across his businesses.

Tesla has built one of the industry's most efficient supply chains in China, achieving its lowest production costs for the Model 3 and Model Y with support from more than 400 domestic suppliers. A Tesla China executive previously said that over 60 of those suppliers also provide components to Tesla’s global operations.

Deliveries of China-made Model 3 and Model Y vehicles increased 24.4% year over year in June, while second-quarter sales and exports from the Shanghai factory climbed 32.8%.

Tesla has also said that more than 95% of the components used in China-built Model 3 sedans and the refreshed Model Y are sourced locally, underscoring the importance of its Chinese manufacturing ecosystem.