Tesla evaluates the sale of assets in China in view of a “possible” merger with SpaceX

Tesla evaluates the sale of its activities in China to pave the way for a potential merger with SpaceX. This was revealed by the Wall Street Journal, according to which the US car manufacturer could sell or spin off the business in its second largest market.

Tesla’s market in China

According to the US newspaper, Tesla’s activities in China could be easily separated from those in the United States due to geopolitical tensions. And for this reason, Elon Musk‘s advisors have discussed various options for the separation of the activities in China, including spin-off, sale or closure. Furthermore, a separation could also be useful if a possible merger with SpaceX were to take place.

Each of these moves could have a profound impact on Tesla, whose business in China has transformed it into a consistently profitable global leader in the mass-market electric vehicle market, and potentially affect its valuation if a merger with SpaceX materializes. It is unclear, according to the WSJ, how quickly Tesla could spin off or sell its operations in the country, and it is possible that its plans could change.

The possible merger with Space X

Musk, who is CEO of both Tesla and SpaceX, has highlighted in recent months the potential for synergy between the two companies as part of his reorganization focused on artificial intelligence projects. Investors and analysts have welcomed the idea of a merger, especially after the record stock market listing of SpaceX, which raised 86 billion dollars in June.

The separation of Tesla’s operations in China, including the electric vehicle manufacturing plant, would address potential conflicts arising from SpaceX’s role as a major supplier to the US defense sector. Such an agreement would aim to create a clear separation between Tesla’s Chinese subsidiary and its business in the United States. SpaceX is subject to significant restrictions due to its dealings with the US government. The company is a major provider of defense services for national security, with activities that include launching top-secret satellites and operating internet services in war zones such as Ukraine.

The Beijing exam

In 2025, sales to the US government represented 20.9% of its revenue. This activity is subject to rigorous regulation, with export restrictions and, for some programs, regulations requiring classification of government activities. According to one of the sources cited by the WSJ, executives have also discussed the possibility of creating a separate sales entity to handle exports from Tesla’s Shanghai factory.

A potential merger between SpaceX and Tesla would likely trigger intense scrutiny from Beijing, as the company, which is a major US defense contractor, would control Tesla factories in China and the know-how and supply chain from those factories could be repurposed for the US military, sources familiar with the matter revealed. Another concern for Beijing is that a deal could put the data of about two million Tesla owners in China in the hands of an American defense firm, the sources added. In the event of a merger, Beijing would likely seek to obtain from Tesla the necessary commitment and trade guarantees to prevent SpaceX’s influence on Tesla China and the illicit spread of dual-use goods, such as rare earth materials, from Tesla China to SpaceX, the sources said. Tesla ownstwo major factories in Shanghai. Electric cars and batteries are produced there and sold in China and exported to various markets around the world, but not to the United States. China is Tesla’s second most important market after the United States, accounting for about 18% of sales in the first half of 2026. Unlike many other Western competitors, Tesla’s automotive manufacturing operations in China are not part of a Chinese joint venture.