Tesla Doubles Down on China, Denies Spin-off Rumors and Advances Localization Partnerships

On July 31, market rumors emerged suggesting Tesla was considering spinning off, selling, or shutting down its China operations, linking this speculation to discussions about a potential merger between Tesla and SpaceX. In response, Tesla CEO Elon Musk dismissed the reports as “ridiculous fake news,” while Tesla China issued a statement the same day denying the claims. Chinese Foreign Ministry spokesperson Mao Ning said she was unaware of the specific situation and reiterated China’s opposition to the overbroad application of national security concepts and discriminatory measures targeting China. Despite the spin-off rumors, Tesla began rolling out a new in-car operating system in batches across China that same day. The updated system integrates ByteDance’s Doubao large language model into Model 3, Model Y, Model S, and Model X vehicles, enabling features such as real-time information queries, natural language conversations, and personalized voice personas. However, the model currently lacks direct vehicle control capabilities. According to informed sources, Alibaba’s Qwen large model has entered an advanced testing phase for Tesla China’s in-car system, covering scenarios including Q&A, vehicle control, navigation, and task handling. Data shows that in 2025, Tesla generated $20.962 billion in revenue from the Chinese market, accounting for approximately 22.1% of its global total revenue of $94.827 billion—a figure that has remained around $21 billion for three consecutive years. Since commencing operations in October 2019, Tesla’s Gigafactory Shanghai has become the company’s largest vehicle production base globally, with annual capacity exceeding 950,000 units. In 2025, it delivered 851,000 vehicles—more than half of Tesla’s global deliveries—and serves export markets including China, Europe, Canada, and the Asia-Pacific region. The Shanghai factory boasts a 95% localization rate in its supply chain, supported by over 400 Chinese Tier-1 suppliers and forming a “four-hour supply chain circle” centered on the Yangtze River Delta. More than 60 of these Chinese suppliers have already been integrated into Tesla’s global procurement network. Even if Tesla adjusts its business structure in the future, its overseas factories are likely to continue sourcing components from China. On the financial front, Tesla’s China subsidiary secured an unsecured revolving credit facility of up to RMB 20 billion from local financial institutions in 2024. By September 2025, this credit line was doubled to RMB 40 billion, with the drawdown period extended through 2028. In February 2025, Tesla officially launched production at its Megafactory Shanghai—the company’s first energy storage facility outside the U.S.—with an annual planned output of 10,000 Megapack units, representing nearly 40 GWh of energy storage capacity, serving global markets. Meanwhile, Tesla’s Full Self-Driving (FSD) software continues to undergo regulatory review in China. The company is actively hiring for roles related to autonomous driving and offering test drives at select stores, with sales staff anticipating broader FSD rollout between August and December 2025. For the second quarter of 2026, Tesla reported total revenue of $28.236 billion, up 26% year-over-year, though operating profit fell to $398 million—a 57% decline compared to the prior year—and free cash flow turned negative. The company expects full-year capital expenditures to exceed $25 billion, primarily directed toward AI computing power, data centers, semiconductors, Robotaxi development, the Optimus humanoid robot, and manufacturing R&D infrastructure. Analysts note that divesting Tesla’s China operations would involve complex entanglements across vehicle production capacity, global supply chains, export systems, and local financing arrangements. Moreover, replicating the cost-efficiency advantages of Gigafactory Shanghai elsewhere would be extremely difficult. Current commercial interests and investment trajectories indicate that Tesla is unlikely to pursue large-scale business restructuring in the near term.