Elon Musk dismissed as 'fake news' a Wall Street Journal report that Tesla executives have been told to prepare for separation of its China business ahead of a potential merger with SpaceX. According to reports from Reuters, Musk, the world's richest person, responded on his X social media account saying 'This has never even come up in a discussion ever. Absurdly fake news'. The Wall Street Journal had reported that Tesla advisers have explored several options for its China business, including a spin-off, sale, or even a shutdown, though it was unclear how quickly Tesla could move on the China business and the plans could change. Tesla shares rose around 2% in premarket trading following Musk's response, as reported by Livemint, though the stock has been under pressure for over a month, declining more than 26.6%. Musk's denial followed a direct X user suggestion that Tesla was preparing to offload the plant, with Musk's reply posted early Friday morning urging people to assume breaking news is false until proven otherwise.
A merger between Tesla and SpaceX would raise significant geopolitical and regulatory hurdles, particularly in China. As reported by Reuters, SpaceX is a major US defence contractor involved in national security and satellite programs, while Tesla owns and operates manufacturing facilities in China, which makes any integration politically sensitive. Gigafactory Shanghai remains Tesla's largest and most productive plant globally, serving as its key export hub for Europe, Canada and the Asia-Pacific region with an annual production capacity exceeding 950,000 vehicles. The facility historically accounts for more than half of Tesla's global deliveries and has crossed the milestone of producing four million vehicles in China in December. The factory exports vehicles to markets including Europe, Canada and Australia. China is also Tesla's second-largest market after the United States, though it faces intense pressure from local players such as BYD.
Musk had previously instructed Tesla executives to maintain a clear separation between the company's US and China operations, aiming to ensure that American business could continue to function independently if geopolitical tensions between Washington and Beijing escalated. According to Livemint, Musk declined to rule out merging Tesla with SpaceX last week, saying the two companies are increasingly interconnected. Unlike many foreign automakers, Tesla's Chinese vehicle business is not structured as a joint venture with a local partner, giving it greater operational flexibility. Tesla executives have also discussed establishing a separate sales entity to oversee exports from the Shanghai facility, with the company considering separate office systems and restricting direct access between China-based employees and other Tesla divisions. 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%.
JPMorgan analysts have pointed to the 'practical bottleneck' of getting regulatory approvals for both companies, particularly in China, where national security concerns over SpaceX's US government ties could pose problems. As reported by Reuters, Tesla has said it sources locally more than 95% of the components in the China-made Model 3 and the refreshed version of the Model Y. Through its China entity, Tesla achieved the lowest costs to manufacture its Model 3 and Model Y with the help of more than 400 domestic suppliers, with more than 60 of them also supplying Tesla globally. SpaceX President and Chief Operating Officer Gwynne Shotwell had also acknowledged potential benefits, telling CNBC in June that folding the companies together 'might make Elon's life a little easier' by streamlining management across his businesses.
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. As reported by Livemint, Wolfe Research has already framed a Tesla and SpaceX merger as a core investor thesis, following SpaceX's record initial public offering which raised $75 billion in June and valued the rocket company at $1.75 trillion. Ark Invest's Cathie Wood disclosed a $529 million rotation from Tesla into SpaceX shares this month, citing similar merger logic. The recent market movements reflect ongoing speculation about potential merger discussions between the two companies, despite Musk's denial of any concrete plans. 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.
