The trend of the global automobile industry turning towards new energy vehicles has increasingly involved more and more companies and capital. Tesla has already announced that it will set up a battery-cell production plant in Brandenburg, Germany, whereas Germany has also stated that it will provide Tesla with a subsidy of up to USD 1.2 billion. It is understood that this subsidy comes from the EUR 2.9 billion battery innovation plan approved by the European Union in January this year, of which 40 companies such as Tesla and BMW are within the scope.
Interestingly, EU's battery subsidies are said to relate to China in that the EU hopes to effectively reduce the number of batteries imported from China. According to relevant German authorities, nearly 80% of the world's lithium batteries are produced by Chinese companies. In order to reduce the import of Chinese batteries, the EU has decided to set up factories in Germany and fully promote electric vehicles.
One has to wonder if the heavy investment of both Germany and the EU in supporting power battery production aims to reduce their dependence on China? Under the current geopolitical and geo-economic background, reducing dependance on China may indeed be part of the reason why the EU supports the production of batteries in Germany. Ironically, China's largest power battery manufacturer CATL, has been investing in the production of power batteries in Germany since 2018, and has expanded the investment from EUR 240 million to EUR 1.8 billion. CATL is responsible in mass-producing power batteries in Germany for German automobile companies such as BMW and Volkswagen.
However, ANBOUND's founder Chan Kung believes that dependency on China may not be the only reason for the EU's move. Large-scale usage of electric vehicles will reduce oil consumption, and an important supplier of oil to Germany and the Europe is Russia. Therefore, the increased production of batteries in Germany and the EU is not merely due to China, but Russia as well. The fundamental purpose of the EU is to reduce dependency on external energy. ANBOUND's information tracking also reveals that the EU has launched the European Battery Alliance (EBA) as early as 2017 to support the auto industry in freeing itself from the dependency on fossil fuels.
Influenced by the new geopolitical background, the development of electric vehicles and the production of power batteries and other industrial activities now carry more geopolitical and geo-economic significance than it did in the past.
Judging from observations made towards countries throughout the world in the past two years, the global industry (including the automobile industry, energy industry, etc.) has shown an amazing momentum in the transition and shift towards new energy. In the past, such measures were either taken halfheartedly or merely discussions that did not result in any action, but they are now being rapidly implemented at all costs. Environmental protection and ecology are, of course, an all-too-common universal reason, but in our opinion, this reason is still secondary. The real problems are in fact, all based on geopolitical considerations. Every country is hoping to avoid major energy risks in the future through energy transition and they want to prevent being hijacked by energy problems.
Based on the same reasoning, ANBOUND has vigorously advocated for China to build a "hydrogen energy society" in recent years. The fundamental reason is not for new energy vehicles, but to avoid energy risks and prevent national policies from being hijacked by energy issues. The construction of a hydrogen energy society based on geopolitical considerations will build one of the energy foundations of China's development on the basis of hydrogen energy. This is significantly different from conventional energy sources and will provide structural support for China's energy security. From Germany's extremely generous USD 1.2 billion in subsidies for the production of power batteries, it appears that other countries are now also starting to attach great importance to energy security.
As the world's largest energy consumer, China faces the world's most severe energy security threat. Chinese President Xi Jinping's pledge to the world in 2020 to achieve carbon peak and carbon neutrality serves not only to demonstrate the country's contribution to climate change mitigation and its responsibility as a major country, but also because of the issue of energy security that China faces.
China's current energy consumption is facing severe threats both in terms of scale and composition. Its economic growth in 2019 was 6.0%, and the total energy consumption in the same period was 4.86 billion tons of standard coal equivalent (TCE), an increase of 3.3% over the previous year. From the perspective of energy consumption composition, in 2019, its coal consumption accounted for 57.7% of total energy consumption (a decrease of 1.5 percentage points from the previous year), oil consumption accounted for about 19.3%, natural gas accounted for about 8.3% and primary power as well as other non-fossil energy (including hydropower, nuclear power, wind power and other clean energy) accounted for about 14.9%. In 2020, affected by the COVID-19 pandemic, China's economic growth rate dropped from 6% in 2019 to 2.3%. However, last year's energy consumption remained strong. According to preliminary estimations, China's total energy consumption in 2020 has increased by 2.2% over the previous year. While the economic growth rate has dropped by 3.6 percentage points, the energy consumption growth rate has only dropped by 1.1 percentage points. This shows that the Chinese economy has strong inertia and high energy consumption.
In order to support the sustainable development of the economy and industry as well as to meet the continuous growth of residential energy consumption, a high level of energy consumption is needed. This however, has caused China to face great pressure in energy security.
Since joining the WTO in 2001, China has gradually strengthened its status as the "world's factory", which has also made the country build an energy security system globally. Divided into categories, the most important imported energy is oil. In 2019, China imported 506 million tons of oil, a surge of 9.5% over the same period last year, setting a record high for the 17th consecutive year. In 2020, China imported 542 million tons of crude oil, and its dependence on foreign oil reached 73%. Next is natural gas. In 2019, China imported 96.56 million tons of natural gas (equivalent to 135.2 billion cubic meters), an increase of 6.9% year-on-year (of which, pipeline gas imports were 36.31 million tons and about 50.08 billion cubic meters, accounting for 37.6%; LNG imports were 60.25 million tons, accounting for 62.4%). In recent years, China's coal imports have also been increasing. In 2019, China imported nearly 300 million tons of coal, an increase of 6.3% year-on-year, making China the world's largest coal importer.
As countries and industries around the world have adjusted the composition of energy consumption in order to reduce energy security risks, the pressures and risks China faces in terms of energy security have become more prominent. Therefore, strategic-level policies such as changing the composition of energy consumption and building a hydrogen energy society would show their overall importance. It should be emphasized that this pressure is not a long-term one but rather an imminent risk.
Final analysis conclusion:
Countries around the world are turning to new energy sources not only based on industry and market considerations, but also because of the geopolitically related energy security situation. China, as the world's largest energy consumer, will be the first to bear the brunt of the pressure on energy security, hence it should immediately implement strategic policy adjustments.
