Tesla is evaluating several strategic options for its China operations as it explores a potential merger with SpaceX, including the possibility of spinning off, selling, or closing its China unit. The electric vehicle maker’s Chinese business has been a key driver of its global profitability, positioning Tesla as a leading mass-market electric vehicle producer. Any structural changes to this unit could have significant ramifications for Tesla’s overall valuation and operational footprint.
The discussions come amid concerns over conflicts arising from SpaceX's role as a major contractor for the U.S. government, which could complicate the integration of the two companies. SpaceX is heavily involved in sensitive government projects, including launching classified satellites and providing internet services in conflict zones such as Ukraine. Approximately 20.9% of SpaceX's revenue in 2025 derived from U.S. government contracts, subjecting it to stringent regulatory oversight.
To manage potential security and regulatory risks, Tesla is reportedly considering measures to establish separate administrative systems for its China operations and restrict direct interaction between China-based employees and other global units. This approach aims to address concerns from U.S. regulators and mitigate the risk of Chinese customer data being accessed by an American defense contractor if the merger proceeds.
Tesla’s substantial manufacturing presence in China includes two large factories in Shanghai, producing electric vehicles and batteries for both domestic consumption and export markets. Unlike many Western automakers that operate through joint ventures in China, Tesla maintains full ownership of its Chinese operations.
The company’s relationship with China has been complex. During the first Trump administration, Tesla launched Project Carbon, an initiative aimed at relocating its Chinese suppliers to Mexico to reduce exposure to tariffs and supply chain vulnerabilities. CEO Elon Musk expressed particular concern about the company’s reliance on China for lithium iron phosphate battery cells and semiconductors sourced from Taiwan Semiconductor Manufacturing. In 2025, Tesla announced plans to eliminate the use of China-based suppliers in its U.S. factories by 2027, driven by tariff pressures and domestic production incentives.
A merger involving multinational entities like Tesla and SpaceX would require regulatory approvals across multiple jurisdictions, with antitrust considerations expected to be a significant focus. Moreover, the Chinese government is likely to scrutinize any deal carefully due to potential national security risks and data privacy issues concerning millions of Tesla owners in China.