Volkswagen and Honda Each Set to Make Ontario a Key Hub for EV Battery Manufacturing

Electric vehicles are the order of the day. Facing the imminent threat of climate change and global warming, the current era has realized the need to move away from fossil fuels as fast and as effectively as possible. Between 2024 and 2028, revenue from the electric vehicle market is projected to reach between US$623.3 billion and US$906.7 billion worldwide, with unit sales potentially exceeding 17 million by 2028. 

Amid such massive growth in demand for electric vehicles, all leading vehicle manufacturers are consolidating their vehicle and component manufacturing capabilities. One region that has successfully captured the imagination of multiple leading EV manufacturers is the Canadian province of Ontario. 

Click here to learn how EVs are rapidly cannabalizing the market share of petrol and diesel vehicles.

Honda to Set Up EV Battery Production Facility in Alliston, Ontario, Canada

Honda Motor Co. Ltd. recently announced plans to expand operations and establish a production facility for EV batteries in Alliston, Ontario, Canada. The project, reportedly,  has a budget of US$11 billion and will create a thousand jobs. 

While elaborating on the success of Honda in Canada and how the ‘historic investment’ announcement contributes to that, Jean Marc Leclerc, the President and CEO of Honda Canada Inc., said: 

“It proudly honors the highly skilled associates who have earned a global reputation for manufacturing excellence and represents Honda’s recognition of the long-term attractiveness of the Canadian electric vehicle manufacturing ecosystem.”

Honda Canada Inc., the parent company of both Honda and Acura, established Acura, a luxury vehicle brand specifically for the North American market. This move came in response to the Japanese government’s export restrictions on automobiles to the USA during the 1980s. 

Although Honda Canada Inc. has extensive experience producing over 10 million cars and light trucks at its Alliston manufacturing facilities, the company has collaborated with the governments of Canada and Ontario for this prestigious project. In support, the government will offer performance-based incentives, including new Investment Tax Credits and provincial direct and indirect incentives.

According to Hon. Vic Fedeli, Ontario’s Minister of Economic Development, Honda’s historic investment represents a vote of confidence in Ontario’s status as a leading jurisdiction in the global production and development of electric vehicles, batteries, and battery materials.

However, Honda is not the only leading vehicle manufacturer contemplating building wholesome EV facilities in Ontario. Its peer, Volkswagen, is also in the race. 

Volkswagen Plans for a US$7Billion-Worth Solid-State Battery Facility in Ontario

Volkswagen Group Canada Plc. has announced its vision to manufacture solid-state batteries at its upcoming gigafactory in St. Thomas, Ontario, Canada. Gigafactories are huge facilities that produce a significant number of batteries for EVs. Tesla ushered in the concept of gigafactories through its facility in Sparks, Nevada. The concept is replicated as a model at various places worldwide. 

While explaining Volkswagen’s plans for this upcoming facility in Ontario, Vito Pladino, the Volkswagen AG CEO for Canada, had the following to say:

“The solid-state battery will allow us to provide electrification in a more affordable way.” 

According to Paladino, climate change is compelling many to move away from IC-engine vehicles. However, Paladino believes affordability remains a challenge for EVs. The solid-state batteries to be produced by the car manufacturer will not only be cost-efficient, but they will also be ahead in terms of range and performance. 

Poweco Canada Inc. is Volkswagen’s battery manufacturing subsidiary. It believes the proposed site is ready for groundbreaking and will eventually produce batteries by 2027. 

Solid-state batteries have proven to be better than their lithium-ion counterparts. Since they use solid electrolytes instead of liquid electrolytes, their charging time is less. A solid-state battery is also a safer option to deploy, as its solid electrolytes are less prone to catch fire. 

Apart from signaling a crucial shift in the technological regime of EV battery production, the VW facility to be built at St. Thomas marks a crucial shift in the region’s participation dynamics in the country’s overall tech landscape. With VW making the announcement, it is the first time in years that Canada has attracted a new automaker to build out its supply chain. 

Stellantis and LG Energy Solutions Continue Construction on the NextStar EV Battery Plant in Windsor, Ontario

Stellantis had announced a halt in its project to construct an EV battery plant in partnership with LG Energy Solutions. However, in July 2023, the decision to resume construction became public, incentivized by tax breaks that could go up to $15 billion. 

Victor Fedeli, minister of economic development, job creation, and trade, explained the decision. The Ontario province would provide up to $5 billion in tax breaks based on production over a 10-year term, while the remaining $10 billion in tax breaks would come from the federal government. 

According to the minister, the tax break and the continuance of the deal would help keep Ontario competitive on the global stage and secure jobs. While speaking about the nature of the incentive, Fedeli said:

“It’s not like the incentive money that the province and the feds delivered to the battery company. We invested $500 million in capital. This is like a performance incentive or a tax break. It’s not a cheque per se.”

But what makes Ontario a popular destination for global brands looking forward to expanding their capacities in EV production? Let us inspect the phenomenon closely. 

Ontario: Why Choose it for EV?

Ontario is the second-largest Canadian province. The latest available data suggests its population to be close to 16 million. 

When we look at the EV sector, the Ontario Energy Board reports, and findings suggest that interest in EVs among residential and business customers is on a surge. Looking at this interest, the OEB has taken multiple steps to support EV adoption. In the following segments, we will look into these steps briefly. 

The Ontario Energy Board’s Initiatives to Support EV Adoption

The OEB has introduced a dynamic electricity pricing plan. Residential and small businesses can choose from any of these three price plans. The ultra-low overnight price plan encourages shifting electricity use to overnight when provincewide electricity demand is lower. The ultra-low price applies from 11 p.m. to 7 a.m. every day, supporting the integration and adoption of EVs.

The Board also ensures that those adopting EVs get proper assistance from distributors. The distributors, for instance, need to empower new residential customers with the capacity to accommodate 200-amp service as part of a basic residential connection. The OEB has also established a framework under which the distributor, rather than the customer, pays for the upgrades to the electricity distribution system. 

Ontario’s Proposed Reduction in Electricity Rate for Providers of Electricity Vehicles

The province of Ontario is also contemplating a reduced electricity rate for EV charging station providers. The provincial authorities believe that this incentive will encourage sectoral growth. If approved, the new reduced rate will become effective from January 1st, 2026, onwards. Although the final decision will be taken after consultation with stakeholders, the officials, for now, are planning to apply the reduced charges to chargers that have at least 15 percent utilization.  

According to Energy Minister Todd Smith:

“This is another step we are taking to give drivers in every part of our province, including rural Ontario, the confidence to transition to electric vehicles and take advantage of our growing, world-class clean grid.”

While speaking about the potential benefits of the decision, Susanna Zagar, the CEO of OEB, had the following to say: 

“This rate aims to fairly allocate costs and better support the efficient integration of EVs in Ontario.”

The ministry and officials hope the lowered rates will encourage providers to build more charging stations. They also feel that what has been planned would encourage certain communities to invest in EVs and have a trickle-down effect on consumers. 

Canada’s EV Tax Credit

The latest Canadian budget, released in mid-April 2024, extended the rebates for zero-emission vehicles by two years by updating a policy that would continue funding clean fuel production in Canada and introduce tax credits for EV manufacturing. 

The tax credit would be available for businesses actively investing in assembling electric vehicles, manufacturing batteries, and cathode-active materials in the country. The incentives would cover the cost of relevant buildings and supplements and previous year’s investments in new machinery and equipment. 

The Canadian government is also keen to create a conducive environment for zero-emission vehicle manufacturing in the country, which bolsters investor sentiments. The government has created a provisional allocation to the scale of $607.9 million to Transport Canada for 2024 and 2025. It offers up to $5,000 in rebates for buying or leasing eligible zero-emission vehicles, plug-in hybrids, and hydrogen fuel cell vehicles. 

Click here to learn what makes EV attractive despite solid-state batteries on the horizon.

Ontario is Canada’s Manufacturing Hub and Plans To Remain So

Apart from the policies, rebates, tax cuts, and incentives targeted specifically toward bolstering the production of EVs, Ontario is also a favorite of manufacturing companies for its longstanding and continuing investments in adequate infrastructure building. Especially during the COVID times, in 2021, the Ontario provincial government made it a point to lay out plans and initiatives to revive the region’s manufacturing capabilities. 

The policy discussions showed that Ontario already had a skilled and trained workforce for manufacturing. Despite the stagnation during the times, the sector remained a significant source of jobs in absolute terms, representing roughly 11% of total provincial employment and almost half of the manufacturing jobs in the country. Reportedly, there was no dearth of talent as the jobs were well-paying. 

The provincial authorities eventually devised a partnership strategy to revitalize Ontario manufacturing. Many of the steps it took helped create trust and interest among manufacturing companies in investing in the region. 

For instance, the province chose to invest in skills supporting advanced manufacturing operations, specifically by fostering collaborations with industries and educational institutions to develop a qualified workforce. It planned to develop mentorship programs, encouraging retirees and older workers to teach and mentor the younger workforce. 

Additionally, the province called for the government’s support in encouraging firm-sponsored training. It was also during the drafting of this plan that the idea of an investor tax credit option was conceived. Policymakers believed that such incentives would aid the growth of manufacturing start-ups and attract more risk capital to the sector.  

At the time of creating this plan, the manufacturers in Ontario were already eligible for the Manufacturing and Processing Tax Credit (M&P Tax Credit), which effectively reduced their provincial corporate tax rate from 11.5% to 10%. The plan asked for a viable option to bring down the effective corporate tax rate on manufacturers by making the M&P tax credit more generous. 

All these efforts are now showing results and helping to attract more global players to set up their EV facilities in Ontario. 

A Strategic Location for Future

If plans proceed as intended, Ontario will continue maintaining its dominance in manufacturing. The province boasts that 71% of its adults possess a post-secondary education, making it a leading producer of STEM graduates in North America, home to globally revered universities like the University of Toronto and the University of Waterloo. 

Additionally, the province offers clean and affordable electricity, with almost 90% of Ontario’s electricity generation coming from clean sources in 2022. Geographically, Ontario is strategically located in the heart of North America, extending from a mineral-rich north to the farms and vineyards of the south, featuring a dense urban corridor running east-west along the United States border. With 14 border crossings to the United States, the state is well-connected to New City, Washington, and Chicago. 

These factors make Ontario a conducive habitat for EV companies to thrive. A skilled workforce, affordable access to resources, and a great connection to potential markets—what more could one ask for?

Click here to learn why electric vehicle production is forecasted to increase by seven fold within five years.