Electric Vehicles: Canada made tax incentives stricter, fear increased among Japanese EV manufacturers, know why

Canadian Prime Minister Justin Trudeau is giving more tax breaks to automobile companies to set up their electric vehicle factories in Canada. Because companies like Honda and Toyota are considering new profitable investments.

Canada's federal budget, which was released on Tuesday, unveiled a new 10 per cent tax credit on the capital cost of buildings used for EV manufacturing. But only if companies make a significant bet on locating other parts of their supply chains within Canada.

The cost of the tax credit is estimated to be 1 billion Canadian dollars by 2035. This could be topped on top of the 30 per cent tax credit on equipment costs for EV manufacturers. Which was a measure announced last year.

The budget document says the tax credit is intended to encourage companies to "choose Canada for more than one step in the manufacturing process." That will create more jobs and "help strengthen Canada's position as a leader in this sector."

The government's approach has changed as a result of the new tax benefits. as it makes an effort to stay up with the US as a manufacturing destination. In exchange for constructing their battery assembly plants in Canada last year, Volkswagen, Stellantis, and Northvolt were given sizable production subsidies.

However, Honda is thinking about pursuing an EV project that could cost billions of dollars. Therefore, there are no more production subsidy agreements being offered by the government. according to sources with firsthand knowledge of the issue. The government instead hopes that the tax credits will draw enough capital.

The budget proposed by Finance Minister Chrystia Freeland also includes additional initiatives to encourage funding for energy and natural resource projects.

Using its AAA credit rating, the federal government will help Indigenous groups get better terms when borrowing money to purchase project stakes. One of these is the $5 billion Indigenous Loan Guarantee programme.

This is a crucial step: properties with oil and gas qualify. because some industry associations and leaders of the Indigenous people were worried that investments in fossil fuels would not be accepted.

The government is also aiming to speed up permitting for natural resource projects, especially those in the critical minerals sector. The document states that "it should not take more than a decade to open a new mine and secure our critical mineral supply chain."

But there are still few details on how this will proceed. The budget promises an action plan to be released later this spring. It is intended to set a target of five years or less to complete assessment and permitting for "federally designated" projects. and setting a target of two years or less for simpler or less controversial projects that are not subject to federal impact assessment.