Tesla Could Be Giving Up More Than a Business

• TSLA +1.61%
• 002594.SZ -3.49%

This article first appeared on GuruFocus.

Tesla Inc. (TSLA, Financials), the electric-vehicle and clean-energy company, could face a substantial valuation hit if it were forced to sell its China business, according to RBC Capital Markets.

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The warning followed a report that Tesla had considered a potential sale, spin-off or closure of the operation. Tesla denied the report, though a transaction could become relevant if regulatory requirements complicate a possible combination with SpaceX.

RBC analyst Tom Narayan estimated that China represents roughly 25% of Tesla's sum-of-the-parts valuation. About half of that contribution comes from humanoid robots, while robotaxis account for 20%, automotive operations including Full Self-Driving contribute 15%, and Megapack adds another 15%.

Narayan said Tesla would probably receive only a fraction of that value in a sale. A likely buyer such as BYD or SAIC may focus mainly on the automotive business and possibly Full Self-Driving, leaving much of the projected robotaxi and humanoid upside outside the transaction.

Tesla shares rose about 0.7% in premarket trading to $313.36. Investors will next watch for further clarity from Tesla on its China strategy and any potential SpaceX transaction.