Honda nears deal with Canada to boost electric vehicle capacity

‘Windows of opportunity’

The government’s primary incentive, called the clean technology manufacturing ITC, provides a refundable tax credit for 30% of equipment costs. Finance Minister Chrystia Freeland’s budget last week also introduced a new tax credit that would apply to 10% of the cost of buildings used for electric vehicle manufacturing — if a company has significant portions of its EV supply chain within Canada.

Freeland was closely involved in the Honda negotiations and the new EV tax credit was specifically geared to landing the Japanese firm, according to people familiar with the discussions, though other EV companies will also qualify if they build enough of their supply chain in Canada.

The Honda deal doesn’t include ongoing production subsidies of the type received by Volkswagen and Stellantis, according to people who spoke with Bloomberg about it. They declined to divulge the total estimated cost of government support.

Earlier this year, the Japanese news outlet Nikkei reported that Honda was considering a $14 billion investment in Canada, but hadn’t made a decision yet. A spokesperson for Honda in Canada did not reply to a request for comment Sunday.

Trudeau’s government has argued that large taxpayer support for automakers is necessary to ensure that Canada maintains its share of the North American auto business after U.S. President Joe Biden signed the Inflation Reduction Act into law in 2022, providing financial help for firms building EVs in the U.S.

The auto sector is particularly important to Ontario, Canada’s largest province by population and home to assembly plants owned by Ford Motor Co., General Motors Co., Toyota Motor Corp., and Stellantis, as well as scores of parts suppliers.

“The windows of opportunity for this kind of thing are short,” Industry Minister Francois-Philippe Champagne told Bloomberg in a recent interview discussing last year’s subsidy deals. He said the government had to act after the U.S. enacted the Inflation Reduction Act, or risk losing the plants south of the border. “That window was there and we seized it.”

Stellantis and partner LG Energy Solution are in the middle of building a battery plant in Windsor, Ontario, across the border from Detroit. Volkswagen’s proposed site is southwest of Toronto and Northvolt’s is near Montreal. Canada’s subsidy packages for those companies are being partially paid by provincial governments in Ontario and Quebec.

(With assistance from Mathieu Dion and Thomas Seal.)