How SpaceX’s Break With China Could Clear The Path To A Tesla Merger

As SpaceX expands its role in U.S. national security and defense programs, Elon Musk's rocket company is moving to eliminate China-related supply chain and personnel risks, Nikkei reported. Doing so could pave the way for a merger with his other company, Tesla, where Musk reportedly told executives to prepare for the sale or separation of its Chinese operations, according to the Wall Street Journal.

Musk denied the claims, calling them "absurdly fake news" and stated that a potential combination has "never even come up in a discussion ever." However, when asked about the possibility of a merger during a Tesla earnings call last week, Musk said "as you can tell from all the many collaborations on so many fronts with SpaceX, there's more and more overlap. Especially with Terafab, that's really going to be a gigantic project." Then he added, "obviously we can't talk about, you know, combining companies and that kind of thing on earnings calls" and "it is got to be done with the appropriate process."

Nikkei reported that SpaceX instructs suppliers not to assign Chinese nationals to facilities producing SpaceX hardware or use equipment manufactured by Chinese companies. According to the report, the company also dispatches audit teams to verify compliance with those requirements. "We work hard to adhere to the requests and it is understandable. The technology is a matter of national security, especially as SpaceX also has commercial partnerships with NASA," a source said. SpaceX is also actively building what it terms an "NCNT" (Non-China, Non-Taiwan) supply chain to insulate production against potential conflict in the Taiwan Strait.

By contrast, Tesla's supply chain is deeply enmeshed in and with China. The company's biggest manufacturing facility by output, the Shanghai Gigafactory, was opened in 2019 and made history as the first plant in the country to be fully owned by a foreign carmaker. Since then, Tesla has cultivated networks of local suppliers in the country and built a $590 million Megafactory last year in Shanghai to produce its Megapack energy storage batteries. Crucial components for the company's Optimus humanoid robot also come from China-based suppliers.

In recent years, Musk instructed Tesla executives to organize the company with a "laser" between its U.S. and China businesses so that at least its U.S. half would survive a potential conflict between the two countries. Executives also discussed the possibility of creating a separate sales entity to handle exports from the Shanghai plant, creating separate office systems and barring China-based employees' direct access to other company units.

With SpaceX set to report its first quarterly earnings as a public company on Aug. 4 and nearly 1 billion shares becoming eligible for sale two days later, investors will be looking for good news to offset the stock's 44% decline from its post-IPO high. Continued speculation over a potential merger with Tesla has emerged as one possible catalyst, with Kalshi prediction markets currently implying a 74% chance that SpaceX and Tesla will merge by May 1, 2027, despite Musk's forceful denial.