Summary of Key Points
Recently, there have been rumors that Tesla might split up, sell, or even close its operations in China, which have also been linked to speculation about a merger between Tesla and SpaceX. However, both Elon Musk and Tesla China have denied these claims as "fake news." In reality, splitting up the Chinese business would go against Tesla's commercial interests: The Shanghai factory is its largest vehicle production base globally, responsible for more than half of its annual deliveries and boasts a mature supply chain; the Chinese market is its second-largest source of revenue (22%). With declining profits and tight cash flow, Tesla simply cannot afford the costs and losses associated with such a split. On the contrary, Tesla is increasing its investment in China—by establishing its first overseas energy storage superfactory, integrating vehicle systems with Chinese AI models like DouBao/QianWen, and advancing the testing of FSD (Full Self-Driving).
Geopolitical factors may play a role, but commercial interests are the ultimate determinants for Tesla's decisions. Splitting up the Chinese business is merely an unrealistic rumor.
1. Would Tesla Really Split Up Its Chinese Business? Only a Fool Would Do That—Commercial Interests Don’t Allow It
The Shanghai factory is a vital asset for Tesla:
- Core of Production and Deliveries: With an annual capacity of over 950,000 vehicles and delivering 851,000 units in 2025 (more than half of the global total), it also exports to markets like Europe and Canada.
- Cost Advantages: The supply chain is 95% localized, with over 400 Chinese suppliers forming a "four-hour supply chain circle," ensuring fast delivery, low inventory, and lower costs.
- Revenue Driver: The Chinese market generates approximately $21 billion annually (22% of global revenue), providing stability despite fluctuations in the European market.
- Financial Pressure: Tesla's operating profit decreased by 57% in the second quarter, and it has negative cash flow. It needs to spend $25 billion this year on AI and robotics initiatives. If the Shanghai factory were closed, Tesla would have to build new production capacity elsewhere, diverting funds that could otherwise be invested in future projects.
2. Instead, Tesla Is Increasing Its Presence in China:
Tesla is not only staying but also expanding its operations in China:
- Energy Storage Factory: The Shanghai energy storage superfactory will start production in 2025, becoming the first such facility outside of the United States, with an annual output of 10,000 Megapacks (40 GWh of energy storage capacity), for global sales.
- Intelligent Vehicle Systems: Tesla is integrating its vehicles with Chinese AI models like DouBao and QianWen, which offer real-time information and interactive features, enhancing the vehicle's functionality beyond traditional voice assistants.
- FSD Progress: Tesla is working to get FSD approved by Chinese regulators. It plans to widely roll out this feature by the end of the year, with trial drives available at stores and purchase options available on its website.
3. The Many Challenges of Splitting Up:
Even if Tesla wanted to split up, the practical difficulties would be insurmountable:
- Supply Chain: Over 60 Chinese suppliers are already part of Tesla's global supply chain, and overseas factories use Chinese components. Changing suppliers would require retesting products and increasing production capacity, incurring significant costs.
- Financial Loans: Tesla China has a local loan of 40 billion RMB (unsecured revolving loans). Splitting up the business would affect its financing capabilities.
- Valuation: The overall valuation of Tesla includes expectations for future businesses like robotics and autonomous taxis. Selling the Chinese business separately would result in a lower valuation, either losing money if sold too cheaply or failing to attract buyers if sold too expensive.
4. Geopolitics May Affect Strategies, but Commercial Interests Prevail
Geopolitical factors might prompt Tesla to implement measures such as data and system separations, but a complete split is unlikely:
- China is the largest new energy vehicle market in the world, and the Shanghai factory is the most efficient and cost-effective production base for Tesla. Abandoning it would be like cutting off an important limb.
- If Tesla were to split up its Chinese business, it would have to dismantle its established manufacturing, supply chain, and export networks and start from scratch elsewhere, which would be both time-consuming and costly.
In summary, splitting up the Chinese business is unprofitable for Tesla. Based on its current actions, it is clear that the company is investing more resources in China—after all, making money is the ultimate goal.