A China carveout could reduce regulatory complications related to SpaceX’s U.S. defense work and possible Beijing scrutiny.
- Tesla advisers have reportedly discussed a China spinoff, sale or closure as part of longstanding geopolitical contingency planning.
- SpaceX stock has fallen sharply since its IPO, while Morningstar’s $63 fair value implies about 44% downside from current levels.
- SpaceX’s Aug. 4 earnings will put Starlink growth, AI revenue and heavy spending in focus as Tesla-SpaceX merger talk builds.
Shares of Tesla, Inc. (TSLA) jumped 2% overnight late Thursday after a report said that its China business could be separated ahead of a possible SpaceX merger, reigniting $450 buyout chatter among retail traders.
TSLA stock surged 10% on Thursday, but shares remain down 37% for the month and are on track for their worst monthly performance since December 2022. Meanwhile, SpaceX rose 1% in overnight trading late Thursday but remains on pace for a fourth straight weekly loss, having finished in the red in five of its seven trading weeks since going public.
Tesla China Split Could Ease SpaceX Merger
Tesla executives have been told to prepare for a possible separation of the China business, while advisers have discussed options including a spinoff, sale or closure, according to a WSJ report. The idea comes after years of contingency planning. CEO Elon Musk had reportedly instructed Tesla to create a “laser” between its U.S. and China operations so the American business could survive independently if geopolitical tensions escalated.
A carveout could also reduce complications from SpaceX’s role as a major U.S. defense contractor. SpaceX launches classified payloads and has generated 20.9% of its 2025 business from U.S. government customers, while Tesla’s China operations include major Shanghai factories and a market that accounted for 18% of Tesla sales in the first half of 2026. A merger could therefore draw scrutiny from Beijing over factory know-how, supply chains and data related to two million Tesla owners in China.
The timing comes as Musk increasingly pushes overlap between Tesla and SpaceX around AI. When asked about combining the companies last week at Tesla’s earnings call, Musk said: “Obviously we can’t talk about, you know, combining companies and that kind of thing on earnings calls.” He added: “It is got to be done with the appropriate process.”
SpaceX Valuation Adds Risk To Tesla Merger
Any deal would also link Tesla investors to a SpaceX stock that has struggled since its blockbuster June IPO. SpaceX priced at $135, briefly traded near $200 and later fell to a closing low of $112.55, about 17% below its IPO price and more than 44% below its peak. Morningstar assigns SpaceX a $63 fair value estimate, implying a 44% downside from current levels. “We see the shares as overvalued based on the fundamentals and the uncertainty around ROI on AI investments,” the brokerage said.
SpaceX lost nearly $5 billion on $18.7 billion in revenue in 2025 and another roughly $4.28 billion in the first quarter of 2026. Starlink remains its earnings engine, while AI investment continues to climb. “AI spending and capex are still mushrooming, and we don’t expect AI to be profitable for a long time,” Owens said.
SpaceX reports its first earnings as a public company on Aug. 4, putting Starlink growth, AI revenue and spending under scrutiny just as Tesla investors debate whether the China firewall could become groundwork for a much bigger Musk corporate reshuffle.
How Do Retail Traders Feel About TSLA?
On Stocktwits, retail sentiment for TSLA has been ‘neutral’ over the past month amid ‘normal’ message volume.
One bullish user argued that Tesla’s China business could be separated without hurting the broader story and said, “I don't see it happening for less than $450 at the very, very least,” predicting shorts would be “scrambling for the exits.”
Other traders were less convinced. One argued that BYD already dominates China and said a split could remove pressure from Tesla, while another bearish user valued Tesla’s assets outside China at “maybe $20/share.”
So far this year, Tesla's stock has lagged its "Magnificent Seven" peers, making it the group's worst performer, down about 31%. Even so, Tesla continues to command a premium valuation, trading at a forward price-to-earnings ratio of roughly 160x, by far the highest multiple among the Magnificent Seven stocks.
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