Tesla is reviewing ways to separate its China operations ahead of a push to merge with SpaceX, it was reported.

On July 31, electric-vehicle outlet Electrek reported that Tesla’s internal advisory group is discussing a range of scenarios, including spinning off or selling its China business, as well as a phased withdrawal.

No plan has been finalised so far, and the timing of any implementation is unclear. Tesla and SpaceX did not respond to questions.

The discussions follow comments by Elon Musk (일론 머스크) about a merger. He has not ruled out the possibility of combining Tesla and SpaceX since early July and said there is "more and more overlap" between the two companies. At Tesla’s second-quarter earnings event last week, he said, in particular in relation to the TerraFab, that there is "more overlap." He then drew a line, saying, "I can't talk about merging the companies right now. We need to go through the proper process," and handed the response to Tesla legal chief Brandon Ehrhart (브랜던 에르하트).

In the market, Tesla’s China business is being cited as the biggest obstacle to a merger. SpaceX is a key U.S. government defence and space contractor. In that structure, combining Tesla would create an issue of bringing large-scale production bases in China under the structure of a defence contractor.

The Shanghai plant in particular is a core pillar of Tesla’s car business. The plant recorded surpassing 4 million vehicles produced in China in December last year. Tesla’s China chief has also said the Shanghai plant accounts for more than half of global deliveries. It is also a base that exports not only to the domestic Chinese market but to many markets in Europe and Asia.

For that reason, separating the China business is being seen not as a simple asset sale but as restructuring for a merger. The advisory group’s broad review, from a spin-off to a full sale and business contraction, is interpreted as options to reduce such regulatory burdens. Handling the China business separately could reduce the burden of U.S. national security reviews.

Still, whether an actual separation happens could bring major changes to Tesla’s business structure. The Shanghai plant has been seen as a major production hub and an important asset in terms of profitability. If Tesla were to separate this business, it could be reorganised into a smaller car production system centred on the United States and Berlin.

Merger discussions themselves also remain at an early stage. Although Musk has repeatedly mentioned the possibility of a merger in public, the company has not clearly answered shareholder questions. Since the review is also not a final decision, the direction of any restructuring and the pace of progress in merger talks are expected to be points to watch.