Farsight, July 31 – According to an exclusive report by The Wall Street Journal, Tesla is evaluating the divestiture of its Chinese business to eliminate regulatory hurdles for a potential merger with SpaceX.

Sources familiar with the matter said that some Tesla executives have been asked to prepare standalone plans for the Chinese business, with options discussed by advisors including sale, spin-off, or even closure. However, there is no clear timeline for the arrangements, and the plan may change. Tesla and SpaceX have not yet responded to this.

This does not mean that Tesla has decided to exit China. The current news only points to internal contingency plans. The main reason for the discussion is not the Chinese business itself, but SpaceX's long-term involvement in U.S. government and defense projects. If Tesla and SpaceX merge, Tesla's business in China may face complex data security and regulatory reviews.

The Chinese business is not a marginal asset that Tesla can easily divest. Tesla's 2025 annual report shows that the company generated $20.962 billion in revenue in China that year, accounting for about 22% of global revenue. The Shanghai Gigafactory delivered approximately 851,000 vehicles in 2025, equivalent to 52% of Tesla's global deliveries. It serves not only the Chinese market but also serves as an important production and export base for Tesla.

If the divestiture plan proceeds, the transaction will involve factory assets, supply contracts, data boundaries, technology licensing, and personnel arrangements. A key concern is whether Tesla can maintain its original cost and delivery efficiency after losing the Shanghai manufacturing system, and how an independent Chinese business would continue to operate in terms of brand, technology, and export relationships.

Tesla CEO Elon Musk did not rule out the possibility of a merger between the two companies this month. During Tesla's earnings call, he stated that cooperation between Tesla and SpaceX is increasing, but a corporate merger is not suitable for discussion during an earnings call and must go through the proper procedures.

At this stage, 'Tesla selling its Chinese business' is merely an alternative path, not a concluded transaction. This news indicates that Tesla is facing irreconcilable internal conflicts: while its Chinese business may pose regulatory obstacles for Elon Musk's restructuring of his companies, it also underpins Tesla's most critical manufacturing foundation.