A Wall Street Journal report claiming that Elon Musk-led Tesla (TSLA) might shut or sell its operations in China has raised alarms among the analyst community. Although Tesla has refuted the possibility of such a development, Tom Narayan of RBC Capital Markets has opined that it would be a bad move for Tesla.
Narayan said, “Were Tesla forced to sell its China business, it would likely not receive fair value for it. A sale would generate only a fraction of that value since humanoids and robotaxi upside would be lost—a likely buyer such as BYD or SAIC would probably only want the automotive business and perhaps FSD.”
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This could bring another bout of uncertainty for the $1.2 trillion market cap company, whose shares are already down 28% for the year.
Yet, it must be highlighted that China is a huge deal for Tesla, and if it ceases operations there, the impact would certainly not be immaterial.
China’s Importance to Tesla Cannot Be Overstated
Despite all the skirmishes between China and the U.S., Musk’s closeness to the Trump administration, and competition from Chinese EV players, the country remains the second-biggest revenue contributor for Tesla. At about $9 billion, it represented about a fifth of the total revenues generated by Tesla this year.
China also houses the Tesla Gigafactory in Shanghai, and I think it is the most valuable piece of the puzzle there for the company, as it has become Tesla’s largest manufacturing hub. Opened in 2019, it recorded many firsts. It was Tesla’s first factory outside the United States and was the first wholly foreign-owned automobile plant in China, manufacturing the Model 3 and Model Y iterations of the company’s vehicles. Notably, it has an annual capacity exceeding 950,000 vehicles.
Notably, the news also comes as Tesla has staged a steady comeback in the Chinese EV market. In May 2026, Tesla delivered 85,982 units across its Model 3 and Model Y. Not only was this an 8.2% increase from April (marking the sixth consecutive month of growth), but it also represents a jump of 39.4% from the previous year.
And not just vehicles. Just like the Gigafactory, Shanghai also hosts Tesla’s Megafactory, which manufactures Megapack utility-scale battery systems for energy storage. That facility supports Tesla’s rapidly growing energy generation and storage business and broadens its manufacturing footprint in China beyond passenger vehicles.
