diff --git a/packages/cli/src/modules/source-control.ee/__tests__/source-control-git.service.test.ts b/packages/cli/src/modules/source-control.ee/__tests__/source-control-git.service.test.ts
index 3b2c91d9e19..ca39ab24c33 100644
--- a/packages/cli/src/modules/source-control.ee/__tests__/source-control-git.service.test.ts
+++ b/packages/cli/src/modules/source-control.ee/__tests__/source-control-git.service.test.ts
@@ -4,8 +4,8 @@ import { simpleGit } from 'simple-git';
 import type { SimpleGit } from 'simple-git';
 
 import { SourceControlGitService } from '../source-control-git.service.ee';
-import type { SourceControlPreferences } from '../types/source-control-preferences';
 import type { SourceControlPreferencesService } from '../source-control-preferences.service.ee';
+import type { SourceControlPreferences } from '../types/source-control-preferences';
 
 const MOCK_BRANCHES = {
 	all: ['origin/master', 'origin/feature/branch'],
@@ -77,6 +77,48 @@ describe('SourceControlGitService', () => {
 			});
 		});
 
+		describe('when fetch fails during remote tracking setup', () => {
+			it('should log warning and not throw when tracking fetch failures are tolerated', async () => {
+				const mockLogger = mock<any>();
+				const gitService = new SourceControlGitService(mockLogger, mock(), mock());
+				const prefs = mock<SourceControlPreferences>({ branchName: 'main' });
+				const user = mock<User>();
+				const git = mock<SimpleGit>();
+				gitService.git = git;
+				jest.spyOn(gitService, 'setGitCommand').mockResolvedValue();
+
+				const fetchError = new Error('Authentication failed for HTTPS remote');
+				jest.spyOn(gitService, 'fetch').mockRejectedValue(fetchError);
+
+				await gitService.initRepository(prefs, user, {
+					tolerateTrackingFetchFailure: true,
+				});
+
+				expect(mockLogger.warn).toHaveBeenCalledWith(
+					'Failed to fetch during remote tracking setup',
+					{ error: fetchError },
+				);
+			});
+
+			it('should throw when tracking fetch failures are NOT tolerated', async () => {
+				const gitService = new SourceControlGitService(mock(), mock(), mock());
+				const prefs = mock<SourceControlPreferences>({ branchName: 'main' });
+				const user = mock<User>();
+				const git = mock<SimpleGit>();
+				gitService.git = git;
+				jest.spyOn(gitService, 'setGitCommand').mockResolvedValue();
+
+				const fetchError = new Error('Authentication failed for HTTPS remote');
+				jest.spyOn(gitService, 'fetch').mockRejectedValue(fetchError);
+
+				await expect(
+					gitService.initRepository(prefs, user, {
+						tolerateTrackingFetchFailure: false,
+					}),
+				).rejects.toThrow(fetchError);
+			});
+		});
+
 		describe('repository URL authorization', () => {
 			it('should set repositoryUrl URL for SSH connection type', async () => {
 				const mockPreferencesService = mock<SourceControlPreferencesService>();
diff --git a/packages/cli/src/modules/source-control.ee/source-control-git.service.ee.ts b/packages/cli/src/modules/source-control.ee/source-control-git.service.ee.ts
index ce34b452af7..97ea9797e79 100644
--- a/packages/cli/src/modules/source-control.ee/source-control-git.service.ee.ts
+++ b/packages/cli/src/modules/source-control.ee/source-control-git.service.ee.ts
@@ -101,7 +101,9 @@ export class SourceControlGitService {
 		if (!(await this.hasRemote(sourceControlPreferences.repositoryUrl))) {
 			if (sourceControlPreferences.connected && sourceControlPreferences.repositoryUrl) {
 				const instanceOwner = await this.ownershipService.getInstanceOwner();
-				await this.initRepository(sourceControlPreferences, instanceOwner);
+				await this.initRepository(sourceControlPreferences, instanceOwner, {
+					tolerateTrackingFetchFailure: true,
+				});
 			}
 		}
 
@@ -222,6 +224,7 @@ export class SourceControlGitService {
 			'repositoryUrl' | 'branchName' | 'initRepo' | 'connectionType'
 		>,
 		user: User,
+		options?: { tolerateTrackingFetchFailure?: boolean },
 	): Promise<void> {
 		if (!this.git) {
 			throw new UnexpectedError('Git is not initialized (Promise)');
@@ -253,7 +256,7 @@ export class SourceControlGitService {
 			user.email ?? SOURCE_CONTROL_DEFAULT_EMAIL,
 		);
 
-		await this.trackRemoteIfReady(branchName);
+		await this.trackRemoteIfReady(branchName, options?.tolerateTrackingFetchFailure);
 
 		if (initRepo) {
 			try {
@@ -271,10 +274,18 @@ export class SourceControlGitService {
 	 * If this is a new local repository being set up after remote is ready,
 	 * then set this local to start tracking remote's target branch.
 	 */
-	private async trackRemoteIfReady(targetBranch: string) {
+	private async trackRemoteIfReady(targetBranch: string, tolerateFetchFailure: boolean = false) {
 		if (!this.git) return;
 
-		await this.fetch();
+		try {
+			await this.fetch();
+		} catch (error) {
+			if (!tolerateFetchFailure) {
+				throw error;
+			}
+			this.logger.warn('Failed to fetch during remote tracking setup', { error });
+			return; // Don't fail startup initialization for recoverable remote issues
+		}
 
 		const { currentBranch, branches: remoteBranches } = await this.getBranches();