JTEKT Corporation

Steering systems, drivetrain components, bearings, and machine tools all derive more than half of their revenue from the automotive industry, and transactions with Toyota Motor Corporation, the largest shareholder, account for 21.2% of consolidated revenue. This structure means that fluctuations in automotive market demand directly affect business performance, and progress in electrification and changes in powertrain composition may impact demand volume and revenue composition for each product. The Group is working to maintain and expand its non-automotive customer base in bearings and machine tools and to develop new businesses, but there is no guarantee of success.

Against the backdrop of overproduction and low-price offensives by Chinese automakers, price competition in the global market is intensifying further, raising the risk of declining profitability for the Group's products. The pace of electric vehicle adoption, changes in environmental regulations and tariff policies in various countries, and the rise of emerging manufacturers may also additionally affect the competitive environment. The Group aims to achieve both technological development capability and cost competitiveness, but if it cannot maintain competitiveness, this could directly lead to loss of market share and declining profitability.

If business operations are disrupted by a cyberattack, wide-ranging impacts could occur, including suspension of customers' production lines, halting of head office core operations (payroll, remittances, financial closing, etc.), and GDPR fines and loss of trust due to leakage of customer confidential information. This has been identified as a top-priority risk, and the Group is promoting unification of a next-generation security infrastructure across the Group, development of regulations and rules, crisis drills involving management, and supply chain security inspections (SCS assessments). The difficulty of management is high given the need for a broad response covering the entire supply chain.

In the event of a large-scale earthquake such as the Tokai, Tonankai, or Nankai earthquakes, there is a risk of difficulty in ensuring employee safety and confirming their well-being, damage to production and logistics sites, and disruption of the value chain. This has been identified as a top-priority risk, and the Group is promoting, on a two-year plan, the development, dissemination, and drilling of an initial response headquarters structure capable of responding to multiple disaster scenarios. Events such as disasters affecting customers or suppliers exist that cannot be entirely avoided through the Company's own measures alone.

Against the backdrop of labor and successor shortages due to the declining birthrate and aging population, and changes in the demand structure accompanying electrification of the automotive industry, there is a risk that key suppliers who are difficult to replace may face deteriorating business conditions or go out of business. If a supply disruption occurs, this could lead to difficulty fulfilling supply obligations, increased emergency response costs, and rising manufacturing costs. This has been identified as a top-priority risk, and the Group is promoting understanding of the business conditions of key suppliers, dialogue with and support for improvement of their management, and diversification of procurement sources and consideration of alternative products/methods.

There is a risk that a shortage of specific talent necessary for executing growth strategy (key talent such as in software) could result in insufficient allocation of human resources to priority areas, reducing the ability to achieve targets. In addition, the existence of operations that are overly dependent on specific individuals and cannot be substituted threatens business continuity in a crisis (human resource BCP). This has been identified as a top-priority risk, and the Group is promoting the centralization of HR information, the building and management of a talent portfolio, and an inventory of human resource BCP risks in a crisis (identifying operations dependent on specific individuals and those that cannot be substituted).

Against the backdrop of intensifying U.S.-China conflict and strengthened economic security policies, if additional tariffs, import/export regulations, or trade restrictions are introduced or strengthened for products including machine tools, this could have wide-ranging effects on procurement costs, sales prices, the supply chain, and customer demand. Dependence on specific countries for critical mineral resources such as rare earths also increases procurement risks for motors, sensors, electronic components, and other items. The Group conducts continuous monitoring of regulatory trends utilizing internal and external specialized resources and reviews its export control system, but there are limits to how effectively it can respond to unforeseen regulatory tightening.

Overseas revenue accounts for 60.5% of consolidated revenue, and exchange rate fluctuations directly affect consolidated business performance through the yen conversion of overseas affiliated companies' financial statements. A stronger yen leads to reduced price competitiveness of export products, while a sharp depreciation of the yen leads to increased procurement costs for raw materials, logistics, energy, and other items. The Group is working to mitigate this risk through raising the local procurement ratio and foreign exchange forward contracts, but it is difficult to eliminate all such risk.

It is difficult to completely eliminate quality risk in product development and manufacturing, and there is a possibility that large-scale recalls or high-value damage claims based on product liability may not be fully covered by product warranty provisions or insurance. If a disaster or personal injury accident occurs due to a quality defect, this could lead to a decline in social trust in the product and the Group itself, and to the suspension of transactions with customers. The Group positions quality as one of the most important management matters and manufactures in accordance with world-class quality control standards, but complete elimination of this risk is difficult.

There is a risk that the approval rate for important proposals such as the election of directors may decline due to the tightening of institutional investors' voting standards, as well as a risk of impairment of corporate value assessment due to insufficient dialogue with and disclosure to the capital markets. Management disruption caused by activist intervention or unsolicited takeover proposals is also envisioned as a risk and has been identified as a top-priority risk. The Group is promoting the strengthening of constructive dialogue with shareholders and investors during normal times (Shareholder Relations activities) and developing a crisis response structure in anticipation of hostile tender offers and similar events.