Elon Musk Reportedly Wants SpaceX to Swallow Tesla, But Beijing Fears He Will Hand Over Data on 2 Million Cars

Elon Musk is reportedly exploring a plan to merge SpaceX with Tesla by carving out Tesla’s China business, a move that could redraw the lines between his car, rocket and artificial intelligence empires while alarming officials in Beijing worried about data on roughly two million Chinese Tesla owners.

The Wall Street Journal reported that advisers to Musk and Tesla have been weighing options to separate the company’s China operations from its US business ahead of any potential tie-up with SpaceX. According to people cited by the paper, scenarios on the table include spinning off, selling or even shutting down Tesla’s China arm, and some senior Tesla executives have allegedly been told to prepare for a breakaway. Tesla did not respond to the Journal’s request for comment, while Musk publicly dismissed the story as ‘fake news‘ on his social media platform X. Nothing is confirmed yet, so all of this should be taken with a grain of salt.

Elon Musk Eyes Merger as China Becomes a Problem

Musk has been drifting towards an all-in-one tech conglomerate for several years. SpaceX already owns his artificial intelligence start-up xAI, which he previously bundled with Twitter after buying the social media firm and renaming it X. Folding Tesla into that structure would turn his electric vehicle maker into another arm of a broader space-and-AI outfit rather than a standalone car company.

According to source that Musk has long told Tesla executives to organise the business with a ‘laser’ line between its US and China operations. The idea, according to people familiar with the planning, was to ensure that if relations between Washington and Beijing deteriorated, at least the American side of Tesla could continue to operate. That precaution now looks suspiciously like groundwork for a corporate divorce.

Behind the scenes, advisers have discussed creating a separate sales entity to handle exports from Tesla’s Shanghai plant and building more rigid internal firewalls. One proposal would see Tesla set up distinct office systems and block China-based staff from directly accessing other parts of the company. At present, Tesla China has some autonomy, but teams largely work as one global unit and the firm’s China chief, Tom Zhu, oversees all of Tesla’s worldwide automotive operations. Unpicking that web will not be a neat exercise.

Economically, the stakes are enormous. China is Tesla’s second-largest market, with two major factories in Shanghai that have become central to the company’s production and export machine. Any split would not only need to satisfy investors in the US, who have been intrigued by the idea of combining Tesla with SpaceX after SpaceX’s blockbuster $86 billion fundraising in June, but also regulators and political leaders in Beijing who are far less easily impressed.

SpaceX, Tesla and Beijing’s Data Fears Over Elon Musk

At the core of China’s anxiety is not just Musk’s growing corporate sprawl but the nature of SpaceX itself. The rocket company is a vital US national security contractor, launching classified satellites and running internet services in active war zones, including Ukraine. According to the Journal, sales to the US government accounted for 20.9% of SpaceX’s business in 2025, with strict export controls and classified programmes shaping how the company can operate.

If SpaceX were to absorb Tesla without a major restructuring, Beijing would find itself hosting factories effectively controlled by an American defence contractor. People familiar with Chinese government thinking told that officials fear Tesla’s industrial know-how and supply chain could in theory be repurposed for the US military.

Even more sensitive is the data issue. Tesla vehicles in China generate detailed location, sensor and user data on around two million owners. In the event of a merger, Chinese officials worry that information could fall under the umbrella of a US defence-linked company.

Those sources suggest that Beijing would likely demand binding commitments and ‘business guardrails’ if any deal went ahead. That could include formal promises to prevent SpaceX influencing Tesla China, limits on technology transfers, and restrictions to stop so-called dual-use goods, such as rare-earth materials or advanced components, drifting from the Chinese car business into the rocket division.

From the American side, the incentives to separate Tesla China are obvious enough. The more tightly SpaceX is knitted into Musk’s other ventures, the more Washington will expect a clean break from Chinese operations.

The Trump administration’s nativist turn, which Musk vocally backed and bankrolled, hardened attitudes towards US firms with big China footprints. That broader climate has only made it riskier for a key Pentagon contractor to be entangled with factories in Shanghai.

Musk himself has publicly toyed with the idea of combining Tesla and SpaceX, telling investors recently that he saw growing ‘crossover potential’ as both companies reorganise around artificial intelligence projects. ‘Obviously we can’t talk about, you know, combining companies and that kind of thing on earnings calls,’ he said, adding that it ‘has got to be done with the appropriate process.’ Investors and some analysts, buoyed by SpaceX’s soaring valuation, have warmed to the prospect of a merger that could bundle rockets, cars and AI into one sprawling tech vehicle.

Yet Musk’s flat denial of the latest reporting, and his track record of abrupt strategic U-turns, leaves everyone guessing. He could abandon the idea next week or push aggressively ahead. For now, what appears less in doubt, based on the report, is that Tesla’s China unit is under serious review.

Whether that ends in a spin-off, a sale to Chinese partners, or a quieter internal restructuring designed to mollify both Washington and Beijing, will determine how far Musk can go in his ambition to weld his companies into a single, more formidable machine.

Originally published on IBTimes UK