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If Musk promotes the merger of Tesla and SpaceX, he will face tough scrutiny from the United States and China over China trade, data isolation and national security technology sharing. The success or failure of the merger will largely depend on how Tesla’s Chinese assets are handled.
American tech billionaire Musk is pushingTesla Andspacex Mergers creating ultra-large enterprises may be blocked by regulatory agencies in the United States and China on the basis of “China factors” due to national security concerns and issues such as data and technology sharing.
Reuters reported that Elon Musk said yesterday that his two companies have formed a special committee to discuss a merger, calling the merger a “good idea.” However, there are still some tricky issues that must be dealt with to make the merger possible: Tesla (Tesla ) conflict between SpaceX’s involvement on the manufacturing side, and in the defense business.
Rocket company SpaceX is increasingly relying on sensitive contracts related to the US government and defense, which could lead to any merger involving Tesla’s Chinese business facing tougher scrutiny based on national security considerations.
Chinese regulatory authorities also require Tesla to strictly keep confidential user information collected by the Autopilot system within China, and any firewall mechanisms must ensure that information or technology does not flow in any direction.
Here’s what Musk and his companies can do to mitigate any obstacles posed by Washington or Beijing:
● Can Tesla maintain its business in China?
One possible approach is that the merged company would install a firewall around Tesla’s China operations to prevent SpaceX and other parts of the company from accessing sensitive data. Daniel Koller, head of automotive and mobility at consultancy Intralink Group, said the approach was not unprecedented.
He pointed out that many companies can operate large-scale defense enterprises outside China while maintaining their Chinese businesses, citing Airbus and Honeywell as examples.
SpaceX’s defense-related businesses include Starshield, which develops military and intelligence satellite systems for the Pentagon.
The installation of a “two-way firewall” may also be the most basic requirement to ensure that data collected by Tesla from Chinese drivers remains within China, analysts said. Since 2021, Tesla has complied with regulations from Beijing authorities and kept all driver information in China.
Michael Dunn, CEO of Dunn Insights, a consulting firm that closely follows China’s auto industry, said Tesla could continue to operate as an independent entity in China over the next few years, with its own research and development department and strict protocols to ensure that all data remains in China.
However, Christopher Tang, a professor at the UCLA Anderson School of Management who specializes in global supply chains, said it may not be easy for both Beijing and Washington to be satisfied with this firewall mechanism. He believes the Chinese government is likely to use any merger proposal as a bargaining chip and lists a number of requirements as conditions for approving the merger.
Ioannis Kokkoris, a professor of competition law and economics at Queen Mary University of London, said China could demand two concessions: allowing Chinese companies to acquire strategically important technologies and a commitment to maintain manufacturing capacity and investment in China.
However, any situation requiring the sharing of sensitive technologies belonging to SpaceX would directly violate US national security sanctions.
● What if you choose to disinvest?
