TOYOTA MOTOR CORPORATION

Competition in the global automotive market is intensifying further against the backdrop of technological innovation such as CASE, and responding to the shift in needs from engine vehicles to electrified vehicles has become an urgent task. If Toyota is unable to maintain competitiveness, it may experience declining sales volumes and lower sales prices, adversely affecting its financial position, operating results, and cash flows. Toyota continues efforts to maintain and strengthen its competitiveness, but future superiority is not guaranteed.

Automotive demand fluctuates due to various factors including economic trends in countries around the world, government regulations such as tariffs and import restrictions, fuel prices, and financial incentives, and the outlook remains uncertain. If demand deteriorates beyond expectations, declining sales volumes and lower sales prices could adversely affect the financial position, operating results, and cash flows. In particular, the 2025 tariff increases on exports to the U.S. could be a direct factor in slowing demand.

Launching new vehicles with quality, safety, and sustainability that meet rapidly changing customer values and needs, in a timely manner and at competitive prices, is key to success. Due to constraints in technology, intellectual property, procurement, and manufacturing capacity, Toyota may be unable to realize planned new product launches and capital investments as scheduled. Failure to respond appropriately carries the risk of shrinking sales share and declining revenue and profit margins.

Dependence on specific suppliers or secondary and lower-tier suppliers creates risk of suspension or delay in the procurement of parts and raw materials triggered by geopolitical tensions or economic sanctions. For parts where alternative procurement is difficult, this could lead to production delays or suspensions and increased costs, adversely affecting the financial position, operating results, and cash flows. Toyota adopts a policy of sourcing from multiple suppliers, but the risk of concentration among secondary and lower-tier suppliers cannot be completely eliminated.

In addition to regulations on safety, emissions, and fuel efficiency in each country, the significant U.S. tariff increases on the automotive industry announced in 2025 and retaliatory tariffs by other countries have led to rising product costs and slowing demand. Non-compliance with regulations could result in recalls, fines, government sanctions, and other disadvantages, while tariff response costs also increase the management burden. These effects could spread beyond the U.S. to the automotive industry as a whole.

Physical risks such as typhoons, floods, and droughts could damage production and sales facilities as well as supplier facilities and employees, while regulatory, technological, and market changes accompanying the transition to a low-carbon economy are transforming customer needs, requiring the construction of new supply chains and substantial investment. Failure to achieve climate change-related targets could adversely affect brand image, financial position, and operating results. Although Toyota has formulated business continuity plans (BCPs), the intensification of extreme weather events could create limits to its response capabilities.

Since the consolidated financial statements are denominated in yen, fluctuations in major currencies (U.S. dollar, euro, Australian dollar, etc.) directly affect earnings as translation risk and transaction risk, with yen appreciation against the dollar in particular adversely affecting operating results. While Toyota seeks to mitigate risk through derivatives such as forward foreign exchange contracts and interest rate swaps, as well as local production, complete hedging is difficult. Interest rate fluctuations also affect funding costs and the profitability of the Financial Services Business.

Core systems for manufacturing, R&D, and sales, as well as information services and driving assistance functions for connected cars, face increasing risk of becoming targets of cyber attacks, which are growing in severity, sophistication, and frequency. If unauthorized access or system outages occur, this could lead to business interruption, leakage of confidential data, and adverse effects on product functionality, as well as legal claims, damages, and fines, resulting in significant adverse effects on brand image and financial position. There is also a risk that attacks on business partners and suppliers could spread to affect Toyota.

Rising prices of raw materials used in manufacturing, such as steel, precious metals, non-ferrous metals (aluminum, etc.), and resin-related parts, lead to increased parts costs and manufacturing costs. If these cost increases cannot be sufficiently passed on to sales prices, profitability will be adversely affected. Rising costs at suppliers also pressure Toyota's earnings through procurement prices.

Securing and developing diverse talent with high expertise and extensive experience is essential for the transformation into a mobility company, but intensifying competition for talent creates the risk that recruitment and retention will not proceed as planned. Failure to provide necessary opportunities, education, and resources could lead to a decline in competitiveness, adversely affecting the financial position, operating results, and cash flows. Rapid changes in the business environment are further heightening this risk.