Tesla Looking To Separate China Business Ahead Of Possible SpaceX Merger; Musk Calls It 'Absurdly Fake News'

Tesla is reportedly preparing to separate its China operations from the rest of the company, a move that could clear the path for a potential merger with Elon Musk's other trillion-dollar venture, SpaceX, according to a report by the Wall Street Journal. Musk has since dismissed the claims outright, calling them fabricated.

Tesla executives, according to the report, have been instructed to prepare for an actual separation of the company's China business, with advisers reportedly discussing multiple options, including a spinoff, an outright sale, or winding the operation down entirely.

Citing a person familiar with the internal talks, the report said executives have also discussed setting up an independent sales entity to manage exports out of the Shanghai Gigafactory, along with strict internal firewalls limiting how much access China-based employees have to other parts of the company. According to the report, Musk had reportedly instructed Tesla executives years ago to build what was described as a 'laser' separation between the company's American and Chinese operations, though it remains unclear how quickly any formal separation could actually happen, or whether the plans could still change.

Why SpaceX is part of the story

The China angle matters because of Musk's other company. SpaceX is a major US defense contractor, drawing 20.9 percent of its 2025 business from American government contracts, including classified programs, according to the report. A merger between Tesla and SpaceX would therefore raise serious geopolitical and regulatory complications, since SpaceX's deep ties to US national security work sit uneasily alongside Tesla's wholly owned manufacturing presence in China, its second largest market globally after the United States. Analysts at JPMorgan have separately flagged what they called practical regulatory bottlenecks standing in the way of any such combination, particularly given China's scale in Tesla's business, where the Shanghai plant alone is responsible for more than half of all vehicles the company builds worldwide.

Musk pushes back hard

Responding on his social media platform X, Musk rejected the report entirely. "This has never even come up in a discussion ever," he wrote. "Absurdly fake news. People should assume news is fake until proven otherwise."

Tesla's China team also denied the claims, and neither Tesla nor SpaceX responded to requests for comment from Reuters outside regular business hours.

Despite the denial, Tesla shares climbed 3.5 percent in after-hours trading to touch $320, suggesting investors may be reading the report as fresh evidence that a Tesla-SpaceX combination is inching closer, denial notwithstanding. The speculation is not entirely new. Earlier this month, Musk had already left the door open to a potential merger between the two companies during Tesla's second quarter earnings call, pointing to what he called growing overlap between the businesses, without committing to specifics or timelines. China currently accounts for around 18 percent of Tesla's total sales, with the Shanghai operations run by senior executive Tom Zhu, who also oversees Tesla's global automotive business.

Published on: Friday, July 31, 2026, 11:51 AM IST