Ottawa, Ontario to announce multibillion-dollar Honda EV deal this week

Open this photo in gallery:

The federal government and Ontario are set to announce this week a multibillion-dollar deal with Honda Motor Co. Ltd. that will see the company build a comprehensive electric-vehicle chain in the province.

The deal with Honda includes a stand-alone battery-manufacturing plant, a retooled car-assembly plant, as well as facilities for both cathode materials and separator components, according to three sources familiar with the project.

The Globe and Mail is not identifying the sources, who are not authorized to speak publicly about internal matters.

The battery and assembly plants will be in Alliston, Ont., where the company already manufactures vehicles, and will be built by Honda itself. The other two plants will both be in Ontario, despite Honda also having been negotiating directly with Quebec’s government around possible sites in that province. Those facilities will be joint ventures with other companies.

The financial specifics of the deal have not yet been confirmed. But speaking at a First Nations conference in Toronto on Monday morning, Ontario Premier Doug Ford said the size of the investment will surpass other electric-vehicle deals in the province, by a big margin.

“This week, we’ve landed a new deal. It’ll be the largest deal in Canadian history. It’ll be double the size of Volkswagen. So stay tuned, we’ll be announcing it this week,” he said. Volkswagen’s EV battery plant in St. Thomas, Ont., is expected to be worth $7-billion in capital costs.

Both the scope of Honda’s investment and the way that governments will back it mark a pivot in Canada’s strategy to establish itself a major player in the global race to build EV supply chains, as the auto sector shifts away from making vehicles powered by fossil fuels.

To date, federal and provincial governments have committed as much as $33-billion in production subsidies to land three EV battery factories – up to $15-billion for Stellantis (in partnership with LG Energy Solution), up to $13.2-billion for Volkswagen in Ontario and up to $4.6-billion for Northvolt AB in Quebec. (Those maximum totals would only be reached if the factories began full-capacity production of batteries at the earliest possible date, because the subsidies are time-limited.)

The governments have also announced approximately $5-billion to support the capital costs of those three projects combined. Additional billions have cumulatively been promised to land separate commitments by automakers to retool their vehicle-assembly lines, and to attract investments in battery materials higher up the supply chain.

Since striking those deals, Ottawa has indicated that while it wants to keep courting such investments, it doesn’t have the fiscal firepower to keep matching the U.S. production subsidies for battery plants alone the same way.

The new investment from Honda marks a shift in direction partly because – with the new vehicle-assembly, cathode and separator facilities – it will go much further across the supply chain than those of the other companies.

The structure of the governments’ deal with Honda will also differ significantly from the ones with Volkswagen and Stellantis. Unlike with those companies, the governments will not match production subsidies being offered in the United States.

Instead, it will revolve around federal investment tax credits (ITCs) that will help cover Honda’s capital costs. That includes a 30-per-cent manufacturing ITC, which is nearing federal implementation. And last week’s federal budget included a new tax credit that would provide companies with a 10-per-cent rebate on the costs of constructing new buildings to be used in the electric-vehicle supply chain, which was widely perceived within the auto sector to be geared primarily at Honda.

Although Industry Minister François-Philippe Champagne has been Ottawa’s point person for landing EV-related investments, the shift in federal funding strategy saw Finance Minister Chrystia Freeland take the lead in the final stages of the Honda negotiations.

Speaking at an unrelated event in Montreal on Monday, Ms. Freeland did not answer a reporter’s question about a potential EV deal with Honda. But she broadly highlighted Ottawa’s tax credits to support low-carbon energy transition, which she said are making Canada “one of the world’s most attractive investment destinations.” In the first nine months of 2023, Ms. Freeland said, the country attracted more foreign direct investment per capita than any other G7 country, and total investment in Canada was the third highest in the G20.

The involvement of Ontario’s government – which is also expected to provide financial support for the project – extends back years.

In March, 2022, Honda announced the retooling of its Alliston plant to manufacture the company’s next-generation models, including hybrids, and that summer, Ontario officials met with Honda to discuss a potential investment in battery electric-vehicle production, according to sources.

Since 2022, Vic Fedeli, Ontario’s Minister of Economic Development, Job Creation and Trade, and his team travelled to Japan three times, and Japanese Honda executives came to Toronto three times. The province also sent two formal letters to Honda Canada to signal Ontario’s support for an investment in battery electric-vehicle production in Alliston, as well as the province’s willingness to consider an incentive package for Honda’s EV and EV battery investment.

According to sources, the deal was solidified at a Dec. 15 meeting with Mr. Ford and his team. Mr. Fedeli travelled to Tokyo as recently as April 4.

Honda is the only automaker that has recently been in advanced talks with the federal and provincial governments for an EV-related commitment of this scale. However, there have also been more preliminary discussions with Toyota Motor Corp., which after the Honda announcement will be the only one of the five global automakers with an established manufacturing presence in Canada not to have made major EV-related commitments here.