Tesla Breaking Off Its China Business? Musk Calls It 'Absurdly Fake News'

The Wall Street Journal reported that Tesla was preparing to split off its China business ahead of a potential SpaceX merger.

Tesla China

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Rob Stumpf

By: Rob Stumpf

Jul 31, at 4:18pm ET

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A new report from the Wall Street Journal claims Tesla could separate its U.S. and Chinese business entities.
The report claims a potential SpaceX merger is the reason why executives have been ordered to prepare for a split.
Musk chimed in, calling the rumors "absurdly fake news."

China is the world's largest car market by volume. Not only that, it's a massive playing field where EVs—especially ones built by trendy brands stuffed with the latest self-driving tech—take center stage. It's also the center of a geopolitical firestorm as automakers spill out onto the global market and disrupt sales dominated by Western brands. And it's a profit center for Tesla's car business.

So when The Wall Street Journal reported that Tesla executives were exploring a way to separate Tesla's Chinese operations, it raised a few alarms—enough to get CEO Elon Musk to comment on the rumors.

Elon Musk at 2025 Tesla Annual Meeting

Photo by: Tesla

According to WSJ's report, Musk himself gave the order years ago to organize Tesla with a "laser" between its U.S. and China operations. The reason, per the person familiar with the order, was to ensure that Tesla's U.S. operations could survive in the event of geopolitical conflict involving both countries.

And now, according to the report, Tesla executives have been told to get ready for the China business to split off ahead of a potential SpaceX merger, which isn't confirmed but has been the talk of Wall Street for months. Advisors to Tesla have "discussed possible options for a separation, including a spinoff, sale or closure," the WSJ reports.

Musk was quick to dispel these rumors overnight following the report. "This has never even come up in a discussion ever," wrote Musk on his social media platform, X. "Absurdly fake news."

Gigafactory Shanghai is arguably Tesla's most important plant. Not only does it serve the Chinese market, but it also serves as a major export hub for Europe, Canada, and other markets across the world—especially as import regulations for Chinese-built cars become looser. This alone provides some context into why Tesla might want to prepare for any potential geopolitical tensions.

This rumor of a potential merger between Tesla and SpaceX isn't new, nor is it worth ignoring. Musk is the CEO of both companies and has used mergers in the past to combine his companies. For example, xAI and SpaceX agreed to merge earlier this year to create a company valued at an astounding $1.5 trillion.

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Where things get muddy is SpaceX's involvement as a U.S. defense contractor. Surgically separating Tesla's ties with China could allay those concerns, the outlet notes.

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Musk avoided addressing rumors of a SpaceX merger during the company's most recent earnings call, but didn't dispel them either. SpaceX president Gwynne Shotwell also failed to shoot down these rumors in June, leading to more speculation from investors on what a future tie-up could look like. What role Tesla's China business plays in that, we'll have to wait and see.

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