Tesla founder and CEO, Elon Musk, has strongly denied rumors suggesting that the electric vehicle company is preparing to spin off its business in China. The spin-off was previously rumored as part of a merger plan between Tesla and SpaceX. Through the social media platform X, Musk emphasized that the news is fake and makes no sense.
This rumor was first sparked by a Wall Street Journal report, which stated that Tesla's advisors had discussed various strategic options for their operations in China. Some of the options discussed included spinning off the division, asset sales, and even closing operations. However, the report also acknowledged that the plan remains dynamic and does not have a definitive timeline.
A merger plan between the two tech giants is widely seen as facing highly complex regulatory and geopolitical hurdles, particularly from the Chinese government. This is because SpaceX plays a critical role as a primary defense contractor for the United States, managing sensitive national security satellite programs. On the other hand, Tesla has a heavy reliance on the Chinese market with full ownership of its gigafactory in Shanghai.
From an operational standpoint, the split in management between Tesla's business units in the United States and China is not actually a new issue. Musk was previously reported to have ordered strict restrictions on data and system access between the two regions. This strategy was deliberately implemented to protect the continuity of Tesla's business in the US should diplomatic and economic relations between Washington and Beijing deteriorate further.
China itself plays a crucial role in Tesla's global business continuity. The Gigafactory Shanghai is the electric carmaker's largest and most efficient production facility, accounting for more than half of its total global deliveries. Thanks to a highly integrated local supply chain, Tesla has managed to push the production costs of the Model 3 and Model Y to their lowest points.
Financial institution JPMorgan assesses that a potential merger between Tesla and SpaceX is almost impossible to get the green light from Chinese regulators. SpaceX's close ties with the US military are bound to spark national security concerns for Beijing. Despite these sensitive issues, the market responded calmly, as reflected by Tesla's shares rising about 2 percent in pre-market trading.
