The Wall Street Journal reported that Tesla is considering selling or cutting loose its China business to clear a path toward a potential merger with SpaceX.
Citing a person familiar with the talks, the Wall Street Journal reported that advisers have floated options including a spinoff, an outright sale, or winding down Tesla's China operation, and that nothing is locked in.
Giga Shanghai produced Tesla's 4 millionth China-built car in December.
Tesla's Shanghai factory (Giga Shanghai) builds more than half of all Tesla vehicles and accounts for more than half of the company's global deliveries. The factory exports cars to Europe and much of Asia and supplies China's domestic market.
Earlier in July, Elon Musk declined to shut down the idea of combining Tesla and SpaceX, citing "more and more overlap" between his companies.
Musk said on Tesla's second-quarter earnings call that the company could not discuss a merger and that any such process must be handled appropriately. He then handed the question to Tesla's general counsel, Brandon Ehrhart.
Tesla avoided answering shareholder questions related to a potential Tesla-SpaceX merger. SpaceX is one of the US government's most important defense and space contractors, and Chinese ownership stakes in SpaceX are under scrutiny in Washington, with senators asking the Pentagon to investigate.
Giga Shanghai is profitable and builds cars faster and cheaper than Tesla's US factories. Tesla and SpaceX did not respond to requests for comment.