SUZUKI MOTOR CORPORATION

There are concerns about fines and lost sales opportunities associated with stricter CO2 and fuel efficiency regulations, increased R&D expense burdens, and higher operating costs due to the introduction of carbon taxes. In addition, physical risks exist, such as damage to business locations and supply chain disruptions caused by the increasing frequency and severity of natural disasters. The Company is working on formulating a BCP specifically for flood damage, but if an event exceeding assumptions occurs, it could adversely affect business performance and financial position.

In the fiscal year under review, the India business (including four-wheel vehicles, motorcycles, and other businesses) accounted for a little over 40% of consolidated revenue, indicating an extremely high degree of dependence on a specific market. If demand fluctuations, market deterioration, or intensified competition in India exceed forecasts, there is a risk of material adverse effects on the Group's overall business performance and financial position. Although efforts to improve profitability continue, the structural concentration risk has not been resolved.

Overseas revenue accounts for more than 70% of consolidated revenue, and the Group is highly dependent on overseas production plants mainly in emerging countries, making it a structure that is highly susceptible to the effects of exchange rate fluctuations. The Group seeks to mitigate risk through hedging such as forward exchange contracts and diversification of production sites, but it is not possible to hedge all risks, and fluctuations in exchange rates and interest rates may adversely affect business performance and financial position.

The threat of cyberattacks against core systems used in design, development, production, sales, and accounting, as well as electronic control units mounted on vehicles, is increasing along with the advancement of AI technology, and in the past there have been cases where overseas subsidiaries were targeted. If an attack succeeds, it could cause business interruption, data corruption, and leakage of confidential information, as well as legal claims, liability for damages, and fines resulting from the leakage of personal information. Although security measures are in place, it is difficult to eliminate all risks.

Procurement of certain parts is dependent on specific primary suppliers, and in some cases these primary suppliers are themselves dependent on specific secondary and further downstream suppliers. If continued procurement becomes difficult due to fires, natural disasters, equipment failures, sudden changes in supply and demand, developments in economic security, or the discovery of human rights violations, this could cause production delays or suspensions and increased costs. Although efforts are underway to diversify suppliers, there are limits to resolving structural dependence.

The head office, main R&D facilities, and main production sites are concentrated in Shizuoka Prefecture, an area with a high periodic risk of major earthquakes, raising concerns about severe damage from the Tokai and Tonankai earthquakes, among others. Although measures such as earthquake resistance, fire prevention, BCP formulation, and earthquake insurance are in place, if a disaster exceeds assumptions, it could adversely affect business performance and financial position. Overseas, there is also a risk that procurement, production, and logistics could be halted due to war, terrorism, riots, pandemics, and other events.

Stricter laws and regulations related to emissions, fuel efficiency, and safety, as well as unexpected changes in tariffs, trade policy, and labor legislation, could affect the business environment. In joint ventures across various countries and regions, changes in local regulations and shifts in the management policies of joint venture partners are also additional risk factors. Increased cost burdens due to regulatory changes and the enactment of new laws could adversely affect the Group's business performance and financial position.

Competition in the four-wheel vehicle, motorcycle, and outboard motor industries may intensify further due to progressing globalization and entry from other industries, and if the Company cannot maintain an advantage in quality, safety, price, environmental performance, and development efficiency, there is a risk of declining sales share and revenue. Failure to develop and introduce new products in a timely manner in response to rapid technological changes such as electrification and advanced safety technologies could also lead to declines in sales share and revenue. Although the Company is engaged in continuous technological innovation and product development, delays in responding to environmental changes could adversely affect business performance.

Quality requirements are becoming more complex and sophisticated with the introduction of new technologies such as electrification and autonomous driving technology, and if unexpected quality problems occur, resulting in a large-scale recall, substantial quality-related expenses would be incurred. In addition, damage to brand image could lead to decreased sales and a loss of competitiveness. Although an appropriate management system has been established from development through sales and service, quality risk in new technology areas is increasing.

If purchase prices for raw materials such as steel and parts rise sharply, and the Company is unable to sufficiently pass these costs on to product sales prices, profitability would be squeezed. The Company is engaged in cost reduction activities and optimization of product pricing, but there is a possibility that responses may lag during periods of sharp price increases. Global supply and demand fluctuations and geopolitical risks are factors that amplify price volatility.