The tax break is expected to cost C $1bn by 2035 and it could add to a 30 percent tax break announced last year on equipment costs for electric car makers.

The tax break policy is designed to encourage automakers to choose Canada for more than one stage in the manufacturing process. This move will create more job opportunities and help solidify Canada’s leadership in this area.

The new tax policy highlights a shift in strategy by the Canadian government. Canada is seeking to match the United States and willing to become an investment destination for manufacturers. Volkswagen, Stellantis and Northvolt all received large production subsidies last year to build battery assemble plants in Canada. However, Canadian government will no longer provide subsidies for Honda since the government hopes the tax breaks will be enough to attract Honda.

The Finance Minister Chrystia Freeland also introduces other initiatives aimed at boosting investment in new energy and natural resources. One of them is a guarantee program that helps the local group in purchasing stakes. Petroleum and natural gas are eligible for the loans. It is a significant move because the local leaders will no longer concerned about the fossil fuel investments would be excluded fro the project.

The government is also committed to speeding up approvals for natural resource projects, especially those in the critical mineral sector. “When new mines are opened, it should not take us more than a decade to secure the critical mineral supply chain.”