Index > Briefing
Sunday, January 24, 2021
Hydrogen Vehicle, A Tie for China-Japan Economic Cooperation

As the world ushers in the year 2021, an undeniable fact is that the global economy remains under the shadows of the COVID-19 pandemic and geopolitical frictions. While the change of administration in the United States has brought some hope for the world, the Biden administration has multiple domestic issues to deal with currently, and it is unlikely that the U.S. is able to shift its focus on the rest of the world for the moment. As it stands, the global political and economic situation has a very strong inertia and follows its own logic. To a large extent, how countries around the world continue to develop depends on their respective actions on the bilateral, multilateral, regional and global level.

The delicate bilateral relationship between China and Japan is one such example. The two countries are in a certain "antagonistic" relationship in terms of geopolitics. On January 21, Jake Sullivan, the U.S. National Security Advisor, had an "introductory call" with allies such as Britain, France, Germany, and Japan. One of the topics discussed was the challenges posed by China. However, the geographical location of China and Japan plays a part in determining the geo-economic proximity of the two countries. China and Japan are the world's second and third largest economies. In 2020, the bilateral trade volume between the two reached RMB 2.2 trillion. At the same time, Japan is China's fourth largest trading partner.

Researchers from ANBOUND point out that from a geopolitical perspective, in the China-Japan relationship which is supported by the twin-pillars of geopolitics and geoeconomics, China and Japan are at least economically attached to each other. As important as this may be, it is still hard to ignore geopolitical factors. In fact, in the "1+3" strategic proposal that ANBOUND put forward in the past to deal with anti-globalization, Japan is an important member that has the same foundations as China on the concept of free trade.

There is every opportunity for China to now add another link in the China-Japan economic relationship-cooperation, i.e. the hydrogen car industry. That China should build a "hydrogen energy society" is a strategic suggestion ANBOUND has been advocating for the past two years. In the construction of the complex system that is the "hydrogen energy society", hydrogen energy vehicles are crucial as an industrial starter and an implementable industrial project.

Generally speaking, the global economy will increase its efforts to shift towards being a low-carbon economy in the next 30 years, and the low-carbon development or carbon-reduction development of many industries will inevitably become a common trend. As an important industry that integrates manufacturing, bulk consumption, and energy consumption, the automobile industry has already seen a trend towards new energy vehicles. Looking from the perspective of the development of the auto market globally, the auto industry is entering an era of technological upgrading which it has been accelerating towards since 2020. According to information by ANBOUND, in 2020, the world's major automobile companies have launched new models of electric vehicles, and the number of initial new models now number more than 40. Most of them will be put on the market in 2021, including Volvo Cars, as well as BMW, GM, Ford, Porsche, Volkswagen, Mercedes-Benz, and some new pure electric vehicle manufacturers that the market is not familiar with. These automakers have put new energy vehicles on the market in large numbers. The launch of such a large-scale and large number of electric vehicles means that the era of fuel-based passenger vehicles is about to pass, and a new chapter in the world of the automobile market is about to begin.

In Japan, the development of new energy vehicles has taken a different approach from that of other countries. In addition to electric vehicles, Toyota has made great achievements in the development of hydrogen vehicles. Toyota has already launched a mass-produced hybrid electric vehicle (HEV) in 2014 under the brand Mirai. Now, Toyota's hydrogen vehicle has entered the second generation. It has to be said that the second-generation Mirai looks amazing. The initial strange appearance of Toyota's first-generation hydrogen vehicle has is now gone, replaced by the Lexus GS-style. The second-generation Mirai will also be equipped with an electric motor on the rear wheels in order to provide better handling and driving performance. In addition, the new model will have the most advanced fuel cell system to date. The maximum range of the new model's hydrogen fuel tank may exceed 420 miles (about 650 kilometers), which surpasses that of an ordinary fuel vehicle. Mirai also possesses the advantage of only requiring 3 minutes to add 5 kg of hydrogen to the hydrogen storage tank of the vehicle at a hydrogen refueling station, which is the same amount of time needed to refuel a normal vehicle, making it even more convenient.

Although Toyota's hydrogen vehicles are taking the lead in research and development, the biggest problem they face is the lack of a large enough market to realize their market value. ANBOUND's data indicates that Mirai vehicles currently sells for as high as USD 60,000 and they have sold more than 9,000 vehicles worldwide so far. As of May 2019, Mirai's domestic sales in Japan were 2,983 units, as compared with its annual sales in 2016 which was only 950 units. Mirai's largest market is the United States. As of June 2019, Mirai's sales in the United States numbered 5,607 units, and its annual sales peaked in 2017 at 1,838 units. It is therefore safe to say that Toyota's hydrogen cars are not well received. Hence, Toyota needs to urgently find a market that accommodates its advanced hydrogen vehicles.

For a country like China which vigorously promotes the development of carbon reduction, Toyota's hydrogen vehicles undoubtedly provide a new energy vehicle product that is in line with its future development. China's new energy vehicle technology is rather average, but it has the advantage of possessing a huge market. According to the data of the Sweden-based Electric Vehicle World Sales Database, in 2020, global electric vehicle sales increased by 43% to more than 3 million vehicles. The five countries with the highest sales of electric vehicles were China (1.3 million), Germany (400,000), the United States (300,000), France and the United Kingdom (both 200,000). Other data showed that in 2020, China's new energy vehicle production and sales reached 1.366 million and 1.367 million respectively, an increase of 7.5% and 10.9% year-on-year. Among them, the production and sales of pure electric vehicles were 1.105 million and 1.115 million, an increase of 5.4% and 11.6% respectively; the production and sales of plug-in hybrid vehicles were 260,000 and 251,000, an increase of 18.5% and 8.4% respectively.

In terms of revenue and profit, the contrast between Toyota and Tesla is huge. Toyota Motor's sales in the fiscal year 2019 (that is, from April 2019 to March 2020) was JPY 29.9299 billion, and its operating profit was JPY 2.4428 billion while net profit was JPY 2.0761 billion. In the second quarter of 2020, Tesla's total revenue was USD 6.036 billion, its operating profit was USD 327 million, and the net profit was USD 104 million. Based on the results of the quarter, the annual revenue is about RMB 200 billion, the operating profit less than RMB 10 billion, and the net profit is lower than RMB 3 billion. Tesla's revenue is only 10.6% of Toyota's, yet its net profit is only 0.53% of Toyota's. However, the latest market value of Tesla is about USD 802.5 billion, while the market value of Toyota is about USD 210 billion; the former being nearly 400% more than the latter.

On one hand, such an unreasonable contrast shows the super-high valuation given to new energy vehicles by the capital market, while on the other hand it also shows the pressure faced by Toyota Motors with traditional concepts. Akio Toyoda, the head of Toyota Motor Corporation, was quite dissatisfied with the emerging "electric vehicle revolution" in the world in December last year. He believed that electric vehicles were being overhyped and supporters did not consider the carbon emissions generated by power generation and the transformation of electric vehicles, and that the cost of pure electric vehicles will bring more pollution. While Mr. Akio Toyoda's complaints are justifiable, they are not sufficient enough to warrant a change in the situation. Toyota urgently needs to find a huge new market to realize the market value of its leading hydrogen vehicles and use this to leverage its stock market value.

Based on ANBOUND's past judgments, in 2021 due to the huge pressure generated by the relative decline in the capital market, it is likely that Toyota would need to increase its investment in hydrogen vehicles and vigorously promote its models in the global market. For Toyota, Tesla's strategy of entering the Chinese market is worthy of taking a page from. China's policies and markets have accepted the concept of new energy vehicles, but it lacks a truly sustainable technological path for new energy vehicles and automotive products. We believe that the promotion of hydrogen vehicles in the Chinese market has huge potential for mutual benefit for the manufacturers.

In the current international market environment, Toyota has made a big push to enter the Chinese market with hydrogen vehicles, and it is also be supported by Chinese government policies. This is true regarding the energy saving and carbon reduction of hydrogen energy technology and Toyota's investment in China or in terms of geopolitical needs. If things turn out to be as ANBOUND's suggested, China will begin to build a hydrogen energy society in the future, and Japan's various leading technologies and products in the hydrogen energy field will find a huge market space in China. This kind of complementary cooperation in the industrial and market sectors will complement both China and Japan, which will also have spillover effects in the areas of geo-economics and geopolitics.

Final analysis conclusion:

The development of hydrogen vehicles is a huge area for potential cooperation to both China and Japan. The Chinese market and Japanese technologies and products can form a sustainable space for cooperation in the future. This will not only bring environmental benefits of energy conservation and carbon reduction, as well as financial benefits of revenue and profit growth, but also the diplomatic benefits of improving China-Japanese relations. China needs to seriously consider building a hydrogen energy society, while Japan and Toyota need to likewise consider the huge potential of the Chinese market.

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