Policy that sealed Honda EV deal opens new chapter in industrial strategy

financialpost.com:

Honda Motor Co. Ltd.’s announcement last week that it’s building a $15-billion “vertically integrated” electric-vehicle and battery-cell manufacturing complex in Ontario has opened a new chapter in the country’s industrial strategy for the energy transition.

Previously, Canada had attracted European companies to build battery cell plants here by matching the production tax credits offered in the United States through the Inflation Reduction Act (IRA).

But the federal government has turned the page by introducing a new 10 per cent tax credit for any company that invests across the electric-vehicle supply chain, including the often-ignored midstream segment of active cathode material production. That comes on top of a proposed 30 per cent tax credit on the cost of machinery and equipment needed for the plants.

The two tax credits for Honda are expected to amount to $2.5 billion in federal support, and Ontario Premier Doug Ford said his province has also agreed to provide $2.5 billion in direct and indirect support.

The combined $5 billion may fall short of what production tax credits under the IRA can offer, but Jean Marc Leclerc, chief executive of Honda Canada Inc., said it’s a compelling package.

“What needs to be said about an investment tax credit is it’s guaranteed,” he said. “What we have here is something we can actually count on.”

In contrast, he noted that Volkswagen AG and Stellantis NV had both reached deals with the federal government for production tax credits that are based on the number of batteries produced. But the value of those credits will be determined by the pace of construction and when the batteries are produced. The output rate from those factories will be determined by the price of batteries.

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