Honda’s decision to build out its EV supply chain in Ontario is a significant win for Canada’s economy and climate goals. However, rather than the result of prudent policy, the government’s success in landing the Japanese car manufacturer may have been more a matter of good fortune. Introduced in the 2024 federal budget, the new incentive for EV manufacturers is highly specific and not particularly generous. It requires a taxable corporation to have its vehicle assembly, battery production, and cathode material production all within Canada. In return, it offers only a 10% tax credit on the cost of new buildings. Industry experts believe that the government tailored the EV supply chain credit specifically to attract Honda, as evidenced by Chrystia Freeland’s involvement in both the budget discussions and negotiations with the company. However, the credit’s narrow focus and limited financial incentive make it unlikely to吸引many other foreign investors. Compounding the issue is the fact that the investment tax credit is tied to building costs, rather than other forms of capital investment. This decision overlooks the importance of technological transfer and intellectual property exchange in driving long-term economic growth. To maximize the impact of clean growth incentives, the government should focus on supporting domestic innovation and developing Canadian expertise in battery and cathode technology. Unfortunately, the EV credit fails in this regard. While industrial policy often necessitates tailored incentives for private-public partnerships, the EV credit could have been broader and more generous to attract other investors while still securing Honda’s commitment. The government’s failure to adopt a more comprehensive approach represents a missed opportunity to support clean growth in Canada. It is especially puzzling given the recent introduction of the more sensible Clean Technology Manufacturing ITC, which meets all the criteria for effective industrial policy. While the EV supply chain credit may not be particularly harmful, it is a lost opportunity that has consumed valuable time and political capital. Future incentives should be more carefully crafted to support a broad range of firms and investments, ensuring that Canada remains competitive in the global clean growth economy.
Honda’s EV Investment: A Stroke of Luck or Prudent Policy?
