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Canada’s electric-vehicle supply chain could sprout some new buds again soon if the incentives offered in the federal budget entice companies such as Honda Motor Co. Ltd. to build plants here.

The Liberals are reportedly close to finalizing a package of incentives for Honda to build a battery cell and EV manufacturing complex on a scale larger than anything else in the country. Bloomberg, citing unnamed sources, reported the company is nearing a multibillion-dollar commitment to build a plant in Ontario that will be announced within a week.

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Honda has long built vehicles and engines in Alliston, Ont., but it has yet to say how it will adapt those operations before Canada’s zero-emission vehicle mandate kicks in between 2026 and 2035.

Honda is staying quiet for now, but not everyone is.

“There’s lot of breadcrumbs to follow,” Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing at Western University, which advocates for advanced industry in Ontario, said about government policies that could be tailored to attract Honda to invest in a new EV plant. “I think they’re pretty close, and I think there’s a couple things going on that give us reasons to be optimistic.”

EV tax credit

The budget promised a 10 per cent investment tax credit that would apply to the cost of buildings used in key segments of the EV supply chain: EV assembly, battery vehicle manufacturing and battery cathode production.

That rang a bell for Sweeney and others who have been actively wondering about Honda’s plans for a few months. In January, the Japanese news outlet, Nikkei Asia, reported that Honda is considering a US$14-billion project in Canada that would include EV manufacturing and possibly batteries too, though it did not say where its information came from.

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Honda declined to reveal its plans.

“Honda Canada is considering a number of initiatives and is in contact with governments at all levels as we move into the electrified era,” spokesperson Ken Chiu said in an email. “In order to achieve our 2040 electrification target of 100 per cent electrified vehicles, we are considering various options to increase local production capacity, however, we have nothing further to share at this time.”

Nonetheless, the Nikkei Asia article has fuelled several reports that speculate on Honda’s intentions in Canada.

Other supporting factors include frequent mentions of trips to Japan by both Industry Minister François-Philippe Champagne and Ontario Industry Minister Vic Fedeli.

This past December, Fedeli promised more EV projects are on the way while appearing as a guest on a podcast hosted by the industry trade publication Automotive News.

“I would say that our philosophy and aggressive approach to the EV sector have not waned in any way, shape or form,” he said. “It is still our intention to push hard on electric vehicles being made in Ontario … it is our intention to look for battery opportunities, to continue the work there.”

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EV makers

Of the five automakers that already have operations in Canada, including General Motors Co., Ford Motor Company, Stellantis NV, Toyota Motor Corp. and Honda, only the latter two have not formalized plans to produce EVs here.

In 2022, Prime Minister Justin Trudeau and Ontario Premier Doug Ford visited Honda’s Alliston plant to announce they would each commit $131.6 million towards a $1.4-billion retooling so the next generation of Honda CRVs, including hybrids, could be produced there.

But that’s a long way away from the US$14-billion Honda project that Nikkei Asia referenced, and which Sweeney and others have been speculating about. The article said Honda was considering a number of sites, but only named Ontario, and said the company would make a decision by year-end.

Last year, Volkswagen AG announced it would build a $7-billion battery cell manufacturing plant in St. Thomas, Ont. But the federal government enticed it with production tax credits that the company can claim based on how many batteries it produces.

Similarly, Stellantis in 2022 announced a $5-billion battery cell manufacturing plant in Windsor, Ont., through a joint venture with South Korea’s LG Energy Solution Ltd., for which it is also receiving production tax credits.

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EV deals

Critics of such deals said that government largesse would cancel out any benefits to the economy. They received more ammo for their arguments when the Parliamentary Budget Office estimated the VW deal could end up costing the federal government $16.3 billion in direct and tax support.

The estimate did not include the provincial government’s $500-million contribution, but estimated the VW plant would have a “marginal” impact on the economy, forecasting it would increase real gross domestic product by 0.01 per cent above baseline projections by 2027.

Sweeney criticized the PBO for building a model that’s too simplistic. Much of the federal government’s contributions to VW are based on production tax credits, which are tied to when the plant starts manufacturing and, more broadly, how many EVs it ends up selling each year.

Another question is whether the federal government could create a package comparable to what VW and Stellantis received to entice Honda, or potentially Toyota, which currently builds more vehicles in Ontario than any other company.

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In addition to the 10 per cent tax credit introduced in the 2024 budget, there is also a 30 per cent Clean Technology Manufacturing investment tax credit on new machinery and equipment, plus provincial support.

Sweeney said he thinks the federal government wants to move away from production tax credits, a form of incentive initially introduced in the United States through the Inflation Reduction Act (IRA).

“We got painted into a corner with the IRA and we kind of had to follow suit,” he said. “And we did it, but it’s better when we write our own story.”

But the story as it relates to Honda will only come to light if and when it announces it is building a complex in Canada, and after the government discloses what type of incentives it provided.

• Email: gfriedman@postmedia.com

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