Tesla CEO Elon Musk has strongly denied reports suggesting the electric vehicle giant is considering separating or selling its China business ahead of a possible merger with SpaceX.

Responding to a report published by The Wall Street Journal, Musk called the claims “absurdly fake news”, stating on X (formerly Twitter), “This has never even come up in a discussion ever.”

Report Suggested Major Restructuring

The report claimed Tesla executives had been asked to prepare options for separating the company’s China operations, including a potential spin-off, sale, or complete shutdown of the business.

It also alleged that Tesla executives had discussed creating a separate entity to manage vehicle exports from the company’s Shanghai Gigafactory and implementing stricter separation between Tesla’s U.S. and China operations.

However, Musk categorically rejected the report, saying no such discussions had taken place.

Why China’s Role Matters

Tesla’s Gigafactory Shanghai is the company’s largest manufacturing facility and one of its most important production hubs worldwide.

The factory has an annual production capacity of more than 950,000 vehicles and serves as Tesla’s primary export base for Europe, Canada, and several Asia-Pacific markets.

Historically, the Shanghai facility has accounted for more than half of Tesla’s global vehicle deliveries, making it one of the company’s most valuable assets.

Tesla also manufactures its Model 3 and Model Y vehicles in China, sourcing more than 95% of components locally through a network of over 400 domestic suppliers.

Merger Speculation Continues

The report linked the alleged restructuring plans to ongoing speculation that Tesla could eventually merge with SpaceX, another company led by Elon Musk.

A merger between the two firms would likely face significant regulatory scrutiny, particularly in China.

SpaceX is a major U.S. aerospace and defense contractor involved in satellite and national security programs, while Tesla operates wholly owned manufacturing facilities inside China.

Analysts believe these national security concerns would make regulatory approval for any merger extremely challenging.

Strong Performance in China

Despite growing competition from Chinese automakers, Tesla’s operations in China continue to perform strongly.

Deliveries of China-made Model 3 and Model Y vehicles increased 24.4% year-over-year in June, while second-quarter production and exports from the Shanghai factory rose 32.8% compared to the same period last year.

China remains Tesla’s second-largest market after the United States, although the company faces increasing pressure from domestic electric vehicle manufacturers such as BYD.

Analysts See Regulatory Challenges

Market analysts have noted that even if Tesla and SpaceX were interested in combining their businesses, obtaining regulatory approvals would be extremely difficult.

Earlier this month, Musk did not completely rule out the possibility of a future merger, saying there is growing overlap between the companies’ technologies and operations.

However, industry experts believe geopolitical tensions and regulatory concerns—especially surrounding Tesla’s extensive presence in China—would present major obstacles to any such deal.