Tesla weighs selling China business to clear path for SpaceX merger

Tesla ↗ 0.76% is considering separating or selling its China business as geopolitical tensions between the United States and China intensify, a move that could also clear the path for a potential merger with SpaceX, according to a Wall Street Journal News Corp ↘ 1.67% exclusive report published Thursday.wsj

Structuring for Separation

Elon Musk has directed Tesla's leadership in recent years to create a clear operational distinction between the company's U.S. and Chinese divisions, according to people familiar with the company's strategic planning. The goal is to insulate the American side of Tesla from potential fallout if geopolitical conflict between the two nations escalates further.wsj

The restructuring has been designed so that Tesla's Chinese segment can be distinctly separated from its domestic operations, a configuration that would also prove advantageous should Musk pursue a combination with SpaceX. SpaceX, which handles sensitive U.S. government contracts including national security launches, would face regulatory hurdles in merging with a company deeply embedded in China's manufacturing and supply chain ecosystem.wsj

Merger Speculation Intensifies

The report arrives as speculation about a Tesla-SpaceX merger has reached new heights. Bettors on prediction market Kalshi were assigning a 74% probability as of July 25 that the two companies would merge before May 1, 2027. On Polymarket, a separate prediction platform, the odds of a formal merger announcement by December 31, 2026, stood at 17%.finance.yahoo+1

The surge in merger speculation traces to Tesla's most recent quarterly earnings call, where Wells Fargo ↗ 1.19% analyst Colin Langan asked Musk directly whether the two companies would combine. Musk did not rule it out, pointing to "more and more overlap, especially with Terafab," a joint semiconductor manufacturing venture involving Tesla, SpaceX, and xAI.finance.yahoo

Financial Reality Check

Despite the elevated prediction market odds, the financial picture complicates any near-term deal. Tesla's first-quarter 2026 SEC filing disclosed a $2 billion investment in SpaceX common stock made in March, representing less than 1% ownership. The companies also reported $87 million in related-party revenue during the quarter, primarily from Megapack purchases.cryptoslate

Analysts have cautioned that combining the two businesses would expose weaknesses in both. SpaceX remains unprofitable outside its Starlink division, while a meaningful portion of Tesla's pre-tax income has come from interest earnings and regulatory credit sales rather than core vehicle operations. No special committee, fairness opinion, or transaction agreement has been disclosed as of July 30.rollingout+2