In a quiet Ontario town, Honda’s unusual EV plans could mean big changes ahead

Open this photo in gallery:

On one side of the industrial parkway sits the sprawling Honda campus that, since the 1980s, has quietly made Ontario’s potato-farming capital one of the company’s most important automaking sites.

On the other is a large swath of former farmland, now zoned for industrial use, that has suddenly become a field of dreams for the electric-vehicle future.

Despite its transformation since the Japanese car giant chose it a base for entry into North America, the town of Alliston, Ont. – part of the amalgamated municipality of New Tecumseth, about an hour’s drive north of Toronto – is not accustomed to lots of outside attention.

That’s partly because of how Honda Motor Co. Ltd. HCM-N conducts itself. It has steadily cranked out reliable vehicles – most famously the Civic, which was long Canada’s top-selling car – with little upheaval. It has maintained an equally sturdy community presence, complete with an on-site hockey arena and regular donations to the local hospital and charities.

But the company has been less inclined toward flashy announcements, or public negotiations with governments for financial support, than the North American automakers with operations in bigger population centres nearer Toronto or down the more travelled manufacturing belt in southwestern Ontario.

Even Honda’s role in the electrification revolution overtaking the industry has to date been understated. Amid a slower pivot to electric vehicles than many competitors, it is ramping up production of hybrid vehicles at its two Alliston assembly plants, while closing a third facility that makes internal combustion engines. The number of workers employed here – more than 4,000, in a municipality with about 40,000 – is not expected to change.

But a very big change may in fact be on the horizon. This week, a report by the Japanese news group Nikkei said Honda is considering investing as much as $18.5-billion in making EVs in Canada.

That sum is staggering, outweighing the landmark EV battery-making investments being made elsewhere in Ontario by the Volkswagen Group VWAG-Y (approximately $7-billion) and Stellantis NV STLA-N in partnership with LG Energy Solution (roughly $5-billion) combined.

And here as much as elsewhere, the potential plan is shrouded in mystery – including about what specifically Honda wants to build, what government support it is seeking and how advanced such discussions really are.

In an interview, New Tecumseth Mayor Richard Norcross said he has received no intel on what is in play. “We’re thrilled that we may be considered, we’re hoping that we may be considered, but we just don’t know right now,” he said.

Honda has been characteristically circumspect, saying in a statement that it’s “considering a number of initiatives and is in contact with governments at all levels as we move into the electrified era.”

Ottawa hasn’t been much more publicly forthcoming. While confirming a sit-down this week with Honda executives, Finance Minister Chrystia Freeland said that it was among “various meetings with Honda, by officials across the government,” that Honda “has been a very important investor in Canada,” and that “our work with them is ongoing.”

Nor has Ontario’s government, which partners with Ottawa in subsidizing auto sector investments, shed any light.

Nevertheless, from conversations with other federal officials – whom The Globe is not identifying because they were not authorized to speak publicly on the subject – it’s possible to piece together some dynamics.

The EV-related talks between Ottawa and Honda broadly began, according to one official familiar with them, during Industry Minister Francois-Philippe Champagne’s visit to Japan last spring. Honda then initiated a more specific discussion around a potential investment package later in 2023.

The $18.5-billion figure that has been reported – which would dwarf Honda’s only other major North American EV commitment so far, a (U.S.)$4.4-billion hub in Marysville, Ohio – owes to the company pursuing a more comprehensive electrification investment than automakers have generally made on this continent.

Included in the package under discussion are new battery-making plants and vehicle assembly facilities. More than that, officials suggest that Honda is interested in building out other aspects of an EV supply chain in Canada.

Although they did not elaborate, it could include manufacturing battery components and perhaps even involvement in mining and refining materials.

While that combination would seem to suggest a massive subsidization total from governments – given that Ottawa and Queen’s Park committed up to $15-billion to Stellantis-LG and up to $13-billion for Volkswagen for battery factories alone – there seems to be hope in Ottawa that less eye-popping numbers might land this investment.

There are a few possible reasons for such optimism.

One relates to timelines. For the other companies, the federal and provincial governments have matched U.S. production tax credits for EV battery production (which effectively means annually subsidizing plants after they start operation), which are in place until the early 2030s under the U.S. Inflation Reduction Act. Honda would likely start any Ontario battery-making operations later than Volkswagen or Stellantis, so it would receive less money in total before the subsidies expired.

Ottawa may also want to avoid matching the U.S. production subsidies altogether, with one official saying that new federal investment tax credits (ITCs) – which the government is currently putting in place regardless – have been the focus of potential federal support for Honda thus far.

Counterintuitively, the potential project’s scope could be the reason Ottawa thinks that form of backing could suffice. Only battery-making has qualified for the massive production subsidies in both countries, but all the components Honda is considering would likely qualify for Ottawa’s new 30 per cent ITCs. That could effectively mean more financial support for the total package’s capital costs than would be assured south of the border.

There is also speculation, in Ottawa and among Canadian auto industry sources, that political uncertainty in the United States – including production subsidies possibly being scrapped if President Joe Biden loses November’s election – could make Canada more appealing even if does not quite match U.S. funds currently available.

Then there are the persistent references to Honda simply doing things differently from American or European automakers – including placing a greater premium on remaining in places where it has a strong existing relationship, such as Alliston.

In one sense, that corporate culture may lower the stakes. With the likes of Stellantis, General Motors Co. GM-N and Ford Motor Co. F-N, there was an obvious danger that if governments did not generously subsidize their EV transition, they would pull out of Ontario altogether. Few observers seem to think that’s a major risk with Honda (or with Toyota Motor Corp., the other Japanese company that has assembled vehicles in Ontario since the 1980s, with which talks around EV investment last year apparently stalled).

“They invest incrementally, they never pull back,” said Flavio Volpe, the president of the Auto Parts Manufacturers Association. “They’re the most solid corporate citizens we have in this business.”

Still, Mr. Volpe said governments should not take any companies with a strong Canadian history for granted while courting newcomers such as Volkswagen. “Rule number one in economic development is to not walk past an old friend to greet a new friend,” he said.

It might have been difficult to imagine the friendship with Honda growing beyond its current level in Alliston back when the company surprised the industry by setting up among the potato fields.

But Mr. Norcross confirmed that there are 800 industrially-zoned acres at the ready, plus unused space within Honda’s existing property.

And he downplayed any concerns about meeting work force needs – pointing to New Tecumseth’s ballooning population, projected to top 80,000 by mid-century, and the ability to draw workers from its north, around larger Barrie and into cottage country.

A much bigger Honda presence would surely mean greater change for a place that has enjoyed unusual stability since the company first came to town.

The impression is that Alliston would welcome it – even if nobody yet knows what exactly it would look like.

– With a file from Bill Curry