Honda to Spend $11 Billion on Electric Vehicle Strategy in Canada

(Bloomberg) -- Honda Motor Co. will spend C$15 billion ($11 billion) to build out its electric-vehicle supply chain in Canada, with billions of dollars of financial aid from government, as the Japanese automaker seeks to tap long-term demand in the region.

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The figure includes investment by joint venture partners, and the aim is to start producing EVs in 2028, Honda said. The company will manufacture 240,000 vehicles a year at a new facility in Alliston, Ontario — a town north of Toronto where it currently produces gasoline-powered Honda CR-V and Civic models. It will also build a standalone battery plant in the community with a capacity of 36 gigawatt hours.

The push to develop the battery supply chain will also see Honda begin talks with South Korea’s POSCO Future M Co. for a cathode materials facility, and it plans to partner with Japan’s Asahi Kasei Corp. on separator production.

Bloomberg News reported details of Honda’s plan earlier Thursday.

For Honda, it’s part of a long-term bet on consumer demand for electric vehicles in North America and pushes it toward its goal of having electrified cars account for 100% of sales by 2040. The company already makes hybrid cars in the US and has said it plans to start manufacturing its first US-made fully electric vehicles in Marysville, Ohio next year.

Honda’s new investments are also set to wean its reliance on external manufacturers for batteries and bring it closer to the raw materials crucial to the clean-energy transition.

“We want to use Canada’s rich resources and energy to be able to establish an EV-focused value chain,” Executive Vice-President Shinji Aoyoma said at the company’s headquarters in Tokyo on Thursday. Honda expects it can cut its battery-making costs 20% by producing them on its own, he said.

The investment is a major milestone for Prime Minister Justin Trudeau and Ontario Premier Doug Ford in their quest to secure a share of the North American auto business for Canada as the industry retools toward EVs. The two politicians have already pledged tens of billions of dollars to convince other manufacturers, including Volkswagen AG, to build huge EV battery plants in the country.

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Trudeau and Ford called Honda’s investment the largest auto manufacturing deal in Canadian history. “With this announcement, we will be investing to create Canada’s first comprehensive electric vehicle supply chain from start to finish,” Trudeau said.

The new battery plant will create about 1,000 new jobs, officials said, on top of the 4,200 jobs currently at the vehicle manufacturing plant in Alliston. Vic Fedeli, Ontario’s economic development minister, told Bloomberg that the other battery material factories will also create new jobs, though the government did not yet have numbers to release on that.

Honda will be able to access investment tax credits from the government of Canada, as well as direct and indirect incentives provided by the province of Ontario. The total package of government help may be worth as much as C$5 billion.

The subsidies are structured differently from the ones Canada promised last year to Volkswagen, Stellantis NV and Sweden’s Northvolt AB. Those companies received contracts that will pay a portion of the cost of each battery produced in their Canadian plants — in effect matching the money that’s available to EV battery makers under the US Inflation Reduction Act.

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Those contracts — which topped out at C$15 billion for the Stellantis plant — have been criticized for pledging too much public money for one-off factory deals. Trudeau defended those subsidies as necessary to build up an ecosystem of EV manufacturing to attract companies like Honda, but others are more skeptical.

“Honda would have made this investment regardless” of the earlier battery plant deals, said Greig Mordue, a McMaster University professor who specializes in manufacturing policy and the Canadian auto sector.

He said Honda in general has been less reliant on government subsidies than other global auto firms, and it wouldn’t have made a decision on building Ontario factories based on whether other large battery plants were in the area. “They will use some of the same supply chain, but this is a global supply chain. It’s not a Canadian supply chain,” Mordue said.

--With assistance from Derek Decloet.

(Adds details, quotes from news conference.)

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