TOYOTA BOSHOKU CORPORATION

Toyota Motor Corporation accounted for 23.5% of consolidated revenue in the fiscal year under review, and its direct voting ownership ratio reaches 32.4%. If the company's automobile sales trends deteriorate, this could directly and adversely affect the Group's business results and financial condition. Stable transactions are premised on a basic transaction agreement, but the high degree of dependence itself is recognized as a risk factor.

The Group conducts production and sales activities worldwide, including in Japan, the Americas, China, Asia, and Europe, and is affected by exchange rate fluctuations when translating foreign currency-denominated sales, expenses, assets, and liabilities into yen. Generally, yen appreciation may adversely affect business results and financial condition, and even if the value of local currencies remains unchanged, there is a risk that the value after yen conversion will fluctuate. There is also an indirect risk that currency depreciation in regions where competitors manufacture could intensify price competition.

The Group's production procures raw materials and parts from multiple suppliers outside the Group, and shortages of raw materials and parts may occur due to global shortages, accidents at suppliers, earthquakes, typhoons, floods, epidemics, and the like. Supply shortages lead to production delays and cost increases, adversely affecting business results and financial condition. In addition, significant increases in energy prices such as electricity and gas are also a factor in rising costs.

Many of the Group's domestic plants and suppliers are concentrated in the Tokai region, and if a large-scale earthquake, typhoon, or flooding from concentrated heavy rainfall occurs, production and delivery activities may be delayed or suspended. Although measures such as safety confirmation systems, regular drills, and equipment inspections have been implemented, there is no guarantee that the impact of disruptive events such as human-caused or natural disasters or power outages can be completely prevented or mitigated. If delays or suspensions become prolonged, this could have a material adverse effect on business results and financial condition.

The Group recognizes increasingly sophisticated and elaborate cyberattacks leading to unauthorized intrusion, unauthorized access, computer virus infection, and leakage of confidential information as a significant risk, and is organizationally and continuously strengthening system-related measures as well as employee awareness, education, and training. However, the possibility cannot be excluded that information system failures or external leakage of confidential information may occur due to cyberattacks, intentional misconduct, negligence, or other causes. Should such an event occur, it could adversely affect financial condition and business results through disruption of business activities and loss of social credibility.

Price competition in the automotive industry is extremely severe, and rapid expansion of market share may occur due to the entry of new competitors or alliances among existing competitors. Loss of customers due to pricing pressure or decline in competitiveness may adversely affect the Group's business results and financial condition. It is explicitly stated that there is no guarantee that the Group will be able to compete effectively in the future.

Environmental laws and regulations tend to continue to be revised and strengthened, and delays in responding to them could result in limitations or reductions in product development and manufacturing, adversely affecting financial condition and business results. The Group strives to develop products and manufacturing process technologies adapted to environmental regulations and to reduce environmentally hazardous substances at the manufacturing stage, but delays in responding to tightened regulations could also lead to loss of trust from national and local governments, local residents, and customers. Adverse effects on reputation and credibility are recognized as risks alongside financial losses.

The process of developing new products to respond to increasingly sophisticated and diversified market needs is complex and uncertain, and there is no guarantee that necessary funds and resources will be allocated appropriately or that investments will succeed. There is a risk that product value could decline sharply due to rapid technological advances and changes in market needs, as well as a risk of missing revenue opportunities due to delays in commercializing new technologies under development. If these risks materialize, they could adversely affect business results and financial condition through a decline in competitiveness.

There is no guarantee that all products are free of defects or that recalls will not occur in the future, and product defects leading to large-scale recalls or product liability claims could result in substantial costs and damage to corporate reputation. The Group has product liability insurance, but there is no guarantee that it will fully cover the ultimate amount of damages. This could adversely affect business results and financial condition through decreased sales and other effects.

Because the Group conducts production and sales activities in a wide range of markets including the Americas, China, Asia, and Europe, multiple risks are inherent, including unforeseen changes in laws and regulations, unfavorable changes in tax systems, inadequate infrastructure, unfavorable political and economic factors, and social disruption caused by terrorism, war, epidemics, and the like. Economic downturns and shrinking automobile demand in major markets could directly and adversely affect business results and financial condition. An indirect impact is also recognized in the form of intensified price competition resulting from competitors' use of lower labor costs.