Honda EV Production Plan For Canada Comes Into Focus

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Honda will build batteries for electric vehicles in Ontario with financial support from the Canadian and provincial governments under a plan to be announced this week, a source with direct knowledge of the deal told Reuters. Under the terms of the agreement with Ottawa and Ontario, Honda will build batteries, process the cathode materials needed for the batteries, and also assemble electric vehicles in Ontario.

Canada has been aggressively pursuing auto manufacturers who want to build electric vehicles by matching or in some cases exceeding the financial incentives available in the US Inflation Reduction Act. That plan is working, as both Volkswagen, Northvolt, and Stellantis have committed to building battery factories in Canada.

Honda Chooses Ontario

A final announcement from Honda is expected on April 25, according to Ontario premier Doug Ford. He told reporters on Monday the deal was the largest in Canadian history and would be worth double the C$7 billion that a planned Volkswagen EV electric vehicle plant in Ontario is expected to cost. Last year, Prime Minister Justin Trudeau said that Canada was looking for more “targeted” investments after the government gave hefty subsidies to Volkswagen, Northvolt, and a Stellantis- LG Energy Solution joint venture for their planned battery factories.

The Trudeau government sees the Honda deal as a success story directly related to those agreements. One government official told Bloomberg they created an ecosystem around Canada’s EV supply chain which attracted other auto-related manufactures and allowed the government to transition to its own system of tax incentives.

Honda & Canadian Subsidies

According to Bloomberg, the negotiations between Honda and the Canadian government have taken many months and focused on investment tax credits as the means by which the government will help pay for the capital costs of the factories. Canada has been matching the 30% ITC provided by the US Inflation Reduction Act, but last week it sweetened the deal with a 10% rebate on the costs of constructing new buildings used in key segments of the electric vehicle supply chain if a company has a significant portion of its EV supply chain within Canada.

Finance minister Chrystia Freeland introduced the new tax credit last week in her proposed budget. She 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. It will be available to other EV companies if they have enough of their supply chain in Canada.

The Honda deal does not include ongoing production subsidies of the type received by Volkswagen and Stellantis, according to people who spoke with Bloomberg. They declined to divulge the total estimated cost of government support. The Trudeau government has argued that large taxpayer support for automakers is necessary to ensure that Canada maintains its share of the North American auto business and does not allow those businesses to be lured to the US because of the incentives provided by the Inflation Reduction Act

“The windows of opportunity for this kind of thing are short,” industry minister Francois-Philippe Champagne told Bloomberg in a recent interview in which he discussed the subsidy arrangements his government made with Volkswagen, Northvolt, and Stellantis last year. He said the government had to act after the US enacted the Inflation Reduction Act or risk losing the plants south of the border. “That window was there and we seized it.”

Ontario Is The Heart Of Auto Manufacturing In Canada

The auto sector is particularly important to Ontario, which is the largest province in Canada by population and home to assembly plants owned by Ford, General Motors, Toyota, and Stellantis. Those companies are also supported by hundreds of companies who supply parts and finished goods to the Canadian auto industry.

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.

The planned Canadian battery factory would be Honda’s second in North America. It is already planning to manufacture batteries with LG Energy Solutions in Ohio in a factory that is expected to come online next year. The factory near Jeffersonville, Ohio, will have an annual capacity of 40 GWh. Honda will also convert its existing manufacturing plants in Ohio to produce electric cars based on its e:Architecture  platform in 2026.

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What Is Honda Up To?

According to Nikkei, North America accounts for roughly 40% of Honda’s global sales. Most of the vehicles sold there still have combustion engines, however, the company plans for electric cars to account for 40% of sales in North America by 2030 and up to 80% by 2035.

Earlier this week, it unveiled three new electric cars for China, an announcement that made executive editor Zachary Shahan peevish. Where are the electric cars for North America, he asked? “Those of us outside of China, particularly in the US, can wish all we want that Honda would provide such offerings where we live and give electrics attention outside of China, but without strong policies requiring it, Honda’s going to just keep on Honda-ing in these less advanced markets. Hybrids are good enough for Honda here, apparently.”

Well, patience, Zachary. EV sales are a third of the Chinese market but only about 10% of sales in the US, with the vast majority of those skewed toward blue states. Red states want nothing much to do with these newfangled devices. Presumably Honda intends the batteries it plans to manufacture in Canada to power electric cars in the US.

Earlier this year, Honda announced it would invest $14 billion to produce several new models of electric cars in Canada. Some of that money obviously would go to manufacture the batteries those cars will use. But details about the cars it plans to produce for North America are still vague. It currently has the Prologue — a competent electric SUV — for sale in America, but that car is manufactured at the GM factory in Spring Hill, Tennessee. Recently Honda announced it was terminating its joint development agreement with GM, which leaves the fate of the Prologue up in the air.

The Takeaway

If you are feeling confused about what Honda has planned for electric cars in North America, join the club. It has made some bold pronouncements but provided few details. One supposes all will be revealed in due time. For now, we have to trust that Honda knows what it is doing, even if the outward signs suggest the opposite. Will Honda become the standard bearer for affordable, reliable electric cars has it has done with its gasoline powered cars? “We’ll see,” says the Zen master.