Honda to Build Electric Vehicles, Batteries in Ontario in Multibillion-Dollar Deal

Honda Motor Co. (TYO: 7267) is close to finalizing an agreement with the Canadian government that would see the Japanese automaker invest billions of dollars to build electric vehicles and battery components in the province of Ontario, according to Bloomberg which cited sources familiar with the negotiations.

The deal, expected to be announced this week, involves Honda constructing new facilities in southern Ontario to manufacture cathode materials, build batteries, and assemble battery-powered vehicles. This would make the region a key hub for Honda’s electric vehicle production in North America.

While financial details remain undisclosed, the Canadian federal government reportedly plans to provide Honda with investment tax credits to subsidize a portion of the capital costs in the form of a refundable tax credit for 30% of equipment costs. The 2024 federal budget also includes a new tax credit applicable to 10% of building cost for electric vehicle manufacturing provided the company has a significant portion of its EV supply chain in Canada. 

This arrangement will be different from the deals closed last year with Volkswagen (ETR: VOW3), Stellantis (BIT: STLAM), and Northvolt AB. In those agreements, the government offered billions of dollars over a number of years to spur battery manufacturing in Canada.

The Honda investment comes amid a precarious period for the auto industry’s shift to electric vehicles. Adoption has lagged in some markets due to high prices and lack of charging infrastructure. Nonetheless, automakers continue betting big on EVs long-term, with Honda recently partnering with Nissan on joint EV technology development.

For Canada, securing Honda’s commitment is being positioned by Prime Minister Justin Trudeau’s government as a success stemming directly from last year’s EV supply chain investments that created an attractive ecosystem. 

Honda already has an assembly plant in Alliston, Ontario producing gas-powered models. The anticipated EV investment allows the company to localize more of its electric supply chain in North America as it prepares to launch its first US-made EV next year.

Information for this story was found via Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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