New Delhi, July 31 -- SAN FRANCISCO - Tesla is weighing the sale or spinoff of its China business as Elon Musk moves forward with plans to merge the electric vehicle company with SpaceX, a structure that would require separating Tesla's Chinese operations from a combined entity in which a defense contractor with classified government relationships cannot retain commercial ties to the world's second-largest economy, according to people briefed on the discussions.

The Wall Street Journal first reported the consideration of separating Tesla's China business. The company's Shanghai Gigafactory manufactures roughly 750,000 vehicles annually, serving both the Chinese domestic market and export markets across Southeast Asia and Europe. A sale o...