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WSJ Report... "Separating China business resolves conflict of interest for US defense contractor SpaceX"
Electric vehicle company Tesla is considering selling its China business unit with the possibility of a merger with aerospace company SpaceX in mind, the US daily Wall Street Journal (WSJ) reported on the 30th (local time).
According to sources cited by the WSJ, some Tesla executives have been instructed to prepare for the separation of the China business in anticipation of a potential company merger. Tesla's advisory team also discussed various business separation options, including spin-offs, sales, and business withdrawals.
Tesla operates two large factories in Shanghai, China.
It is reportedly being discussed to establish a separate sales corporation to handle export volumes produced at the Shanghai factories.
Elon Musk, CEO of Tesla and SpaceX, is said to have preemptively designed Tesla's China business to be easily separable from its US operations, considering the geopolitical tensions between the US and China.
The intention is to ensure the survival of at least the US business even if conflicts arise between the two countries.
However, sources said it is unclear how quickly Tesla can spin off or sell its China business, and plans could change.
Market rumors of a merger between Tesla and recently listed SpaceX have been persistent.
Musk has also emphasized the potential for synergy by restructuring the two companies, focusing on artificial intelligence (AI) projects in recent months.
In this situation, the WSJ explained that the unique status of SpaceX as a major US defense contractor is behind Tesla's consideration of selling its China business.
Separating Tesla's China business, including its EV factories, could resolve potential conflicts of interest that SpaceX might face due to significant regulations from dealing with the US government.
There are also observations that if SpaceX and Tesla merge, they are highly likely to undergo strict scrutiny from Chinese authorities.
This is because a US defense contractor would control Tesla factories in China, and the factories' know-how and supply chains could be used for US military purposes.
Sources said Chinese authorities are concerned that if the two companies merge, data from about 2 million Tesla owners in China could fall into the hands of a US defense company.
For Tesla, China is its second-largest market after the US, accounting for about 18% of its revenue in the first half of this year.
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