Business-Related Risks

The MMC Group conducts sales activities in the Middle East. Since the U.S. and Israeli attacks on Iran, rising geopolitical tensions have affected both sales and costs. Furthermore, instability in the Middle East has affected procurement costs across the MMC Group through higher energy prices and increased logistics costs. It has also affected demand trends not only in the Middle East but also in regions such as ASEAN that are highly dependent on energy imports. 

If the situation becomes protracted or more serious, it could lead to matters, including further supply chain disruptions, soaring raw materials prices, a global economic slowdown, and supply risks affecting production, which could impact the operating results, etc. of the MMC Group.

The MMC Group globally sources raw materials and parts, etc., from the perspective of enhancing product quality and cost competitiveness. Depending on the parts and materials, we make it a rule to place optimal orders, such as through centralized ordering or multiple ordering. In addition, we also use rare metals such as palladium and rhodium, which are not only produced in low quantities but are also produced only in specific countries and regions. 

Therefore, if supplies from those suppliers are stopped, or if it is not possible to procure in a timely way and at competitive prices due to such unexpected reasons as rapid changes in the supply and demand of raw materials, parts, etc., changes in the political situation of the country of procurement, tightening of import/export regulations related to economic security, and occurrence of natural disasters, or other reasons, production of our products will be delayed or stopped, and costs may increase. 

In each country, the enactment of laws and regulations to demand companies to take human rights initiatives has progressed. Accordingly, the need for companies to respond to the human rights risk of a supply chain is rapidly increasing. When the MMC Group cannot take proper and timely action on these laws and regulations, legal violations, penalties of an import ban or fines, or damage to our brand image due to a decrease in social credibility would affect our business activities, including production, development, purchase and sales, and therefore may affect the MMC Group’s operating results, etc. 

Since these risks would also significantly impact the MMC Group’s medium- and long-term business plans, we are making efforts to reinforce our risk initiatives related to the supply chain to minimize such an impact on our business and performance. Nevertheless, events associated with such risks may still occur. 

In order to improve product quality, the MMC Group strives to promptly identify the causes of failures and implement countermeasures through collaboration with related departments based on market information, and appropriately assess potential risks. 

If recalls, improvement measures, etc. due to product defects or failures become large scale, or if there is a large-scale liability claim from customers due to product defects or failures in spite of the Group’s efforts to improve the quality of products and services and ensure safety, the MMC Group may incur substantial costs, suffer damage to the evaluation of its products and brand image, and experience a decline in sales, all of which may affect the Group’s operating results, etc. 

The MMC Group is subject to various laws and government regulations concerning the environment, such as gas emissions, fuel efficiency, noise, chemical substances, recycling, water resources, etc. related to the automotive industry, in the countries where the Group operates. 

Moreover, it is also subject to a wide range of laws and regulations in Japan and overseas, such as consumer protection regulations, certificates and permissions related to business and investment, labor regulations, regulations on foreign exchange, trade control including that for security purposes, various tax laws (including tariffs), antimonopoly laws, anti-bribery laws, and the Act on Preventing Delay in Payment to Small and Medium-Sized Entrusted Business Operators in Relation to Manufacturing Consignment. 

In order to deal with these laws and regulations, the MMC Group has made efforts to put in place a system to ensure that the Group complies with laws and regulations; each department in charge has implemented measures to prevent potential non-compliance with laws and regulations, etc., and the MMC Group has also enhanced a structure to respond promptly to any compliance-related matters detected by the Group. However, the possibility that violations of laws or regulations may occur in the future is not zero. It might be pointed out to the Group that there is a law violation, or the content, effect, promptness or other aspect of its response is insufficient. In such a case, we might become subject to an administrative investigation by a regulatory authority or receive punishment, or become a party involved in a lawsuit. If such an event occurs, it could have an impact on the MMC Group’s compliance reputation and operating results, etc.

As the MMC Group conducts its business activities, we may become a party involved in various lawsuits and other legal procedures with users, business partners and third parties. In such a legal procedure or an ongoing legal procedure, if a judgment that is unfavorable to us is made, the operating results, etc. of the MMC Group may be affected. 

Moreover, although the MMC Group holds product liability insurance with a certain limit amount to cover compensation for damages, etc. arising from claims for damages and lawsuits in relation to product liability where the courts ruled in favor of plaintiffs, the insurance policy may not always cover all the compensation for damages, etc. and the MMC Group’s operating results, etc. may be affected. As for the status of an individual product liability lawsuit, please refer to Financial Information as of March 31, 2026 “V. Financial Information, 1. Consolidated financial statements, Notes, Consolidated balance sheet, 6. Contingent liabilities.”

The MMC Group endeavors to protect its own technologies, know-how and other intellectual property as well as to prevent the infringement of third-party intellectual property rights. However, in the event that a third party unlawfully uses the MMC Group’s intellectual property and this results in legal costs, or in the event that an unexpected infringement of a third-party intellectual property right by the MMC Group requires a halt in manufacturing or sales or the unforeseen payment of license fees or compensation, or causes damage to the reputation of the MMC Group’s products and a consequent drop in demand, the operating results, etc. of the MMC Group may be impacted. 

The information that the MMC Group uses in its operations, products, services, etc. and the information technology such as networks and systems where such information is stored come in a wide variety, including those managed by third parties. The MMC Group implements safety management measures for hardware and software, including measures to protect personal information, as well as information security training for Group employees. However, the methods of cyberattacks are becoming more sophisticated and complicated. Due to unauthorized access or cyberattacks by malicious hackers against the MMC Group or our business partners (infection of computer viruses, etc.), inadequate management or human error within the Group or at third parties, or occurrence of natural disasters, there may be leakage of the Group’s confidential, personal, and other information of the Group, suspension of our important operating system and services, adverse effects on the electronic control function of our products, improper paperwork or destruction/falsification of important data. They may result in an impairment of the Group’s brand image and social credibility causing sales to decline, legal claims, lawsuits or liability for damages, obligation to pay penalties or fines, or operational problems such as production suspension. If such a possibility is realized, it could have a negative impact on the operating results, etc. of the Group. 

In the automotive industry, changes in the market environment, competitive landscape, and technological innovation are accelerating. As a result, the underlying assumptions of business and sales strategies may change within a short period. In addition, factors such as the global expansion of competitors, including Chinese manufacturers, intensified sales competition, and changing customer needs may cause changes to the assumptions underlying the MMC Group’s sales strategies, product launches, sales regions, etc. Based on these circumstances, the MMC Group announced its new medium- to long-term vision in May 2026. Under the new medium- to long-term vision, we will pursue a hybrid strategy consisting of a brand-based growth strategy and structural transformation aimed at strengthening our earnings structure. 

However, the MMC Group’s operating results, etc. could be affected if changes in the market environment, competitive landscape, competitors' strategies, customer needs, or other factors prevent the MMC Group from executing its business and sales strategies as planned, resulting in failure to implement initiatives such as launching products, strengthening sales capabilities, improving the sales mix, and increasing revenue per vehicle in a timely and sufficient manner, or adopt sales measures that provide a competitive advantage over other competitors.

To provide customers with a fulfilling mobility life that awakens their spirit of adventure on the basis of reliability backed by technology that achieves “Eco-friendly × Safety, Security and Comfort” in the midst of rapid changes in technology and the technologies and approaches required of automakers, such as various demands in certain areas and the efforts to achieve carbon neutrality, the MMC Group works on development every day considering that it is important to arrange timely introduction of new products and technologies, which are useful, practical and easy-to-use, satisfying customers’ values and needs and manifesting “Mitsubishi Motors-ness.” However, when we cannot sufficiently capture the values and needs of customers even with our research and development based on detailed study and/or when we cannot provide customers with new technologies and products in a timely manner because of internal and external factors, our sales market share, sales and profitability could decline.

The MMC Group has entered into business alliances and partnerships with other companies, including joint ventures, in the areas of research and development, production, and sales, with the expectation of greater efficiency in management resources and synergistic effects. However, there is a possibility that alliances or joint ventures may change or cannot be maintained or may not produce the expected results due to changes in the business structure resulting from changes in market environments or regulations, changes in the business strategy of the other party, disagreements in an alliance policy between the parties, changes in the investment ratio, or other factors. If the results do not meet expectations, the financial condition of the partner deteriorates, or there is a change in the investment relationship, a significant change in the alliance, or the dissolution of the alliance, our Group’s operating results, etc. may be affected. 

The MMC Group believes it is extremely important to secure highly specialized personnel and to provide them with opportunities, and it promotes the creation of a corporate culture that supports diverse working styles through appropriate assignment of personnel based on having appropriate personnel allocation through optimization of the workforce composition and the establishment of a role-based compensation system in addition to the creation of schemes that encourage individual growth. 

However, if recruitment and retention do not proceed as planned due to hiring difficulties and increased labor market mobility, our Group’s competitiveness may decline over the long term. 

Moreover, the MMC Group recognizes that efforts to respect human rights are an indispensable element in fulfilling our social responsibilities in order to expand our business globally and grow sustainably, and works on prohibiting discrimination and eliminating unfair labor practices set out in the “Human Rights Policy.” However, if our Group or related parties take actions that are problematic in terms of human rights, our business foundation may be affected by a loss of trust and confidence from customers or damage to our brand image due to a decline in social credibility, etc. 

In anticipation of tighter fuel efficiency/CO2 emission regulations and ZEV regulations, as well as the increased introduction of carbon pricing, etc., the MMC Group is promoting electrification, energy conservation activities at all our bases and the introduction of renewable energy, based on our “Environmental Plan Package” which sets forth the policies and targets of our Group’s environmental initiatives. However, in the event that cost of sales rises to address the further strengthening of fuel economy/CO2 emissions regulations and other regulations due to climate change countermeasures proceeding more than expected, or if costs of production and procurement rise due to expanding the introduction of carbon pricing, etc., the operating results, etc. of the MMC Group may be affected. 

We are also striving to promote adaptation measures, such as formulating business continuity plans, in preparation for the possibility that global CO2 emissions will not be reduced, temperatures will continue to rise, and natural disasters such as typhoons and torrential rains will become more frequent and severe in a wider area than at present. However, if parts procurement, product manufacturing, sales, distribution, etc., are delayed or halted due to more frequent or severe natural disasters such as floods than expected in the countries or regions where our Group’s or our transaction partners’ production bases are located, our Group’s operating results, etc. may be affected.

As overseas sales account for around 80 percent of the MMC Group’s overall sales, the Group holds receivables denominated in foreign currencies, including U.S. dollars, euros and Australian dollars. 

Further, as the MMC Group manufactures products to export globally at a Thai subsidiary, it also holds liabilities denominated in foreign currencies, primarily the baht. 

As the values of foreign currency denominated assets (accounts receivable–trade, etc.) and foreign currency denominated liabilities (accounts payable–trade, etc.) change when foreign exchange markets for Japanese yen and foreign currencies fluctuate, the MMC Group’s yen-based profit or loss may be affected. 

At present, the MMC Group is working on measures to reduce the impact of exchange rates, such as the export of the vehicles manufactured in Indonesia, and sales expansion in Thailand of the vehicles manufactured in the country, to contain the impact of foreign exchange rates over the medium to long term. However, if there are significant fluctuations in foreign currencies, the operating results, etc. of the MMC Group may be affected.

The MMC Group operates business around the world, and engages in production and sales activities in various countries and regions. These business activities may be affected by an economic downturn, financial crisis, etc. in an individual country and region. In addition, geopolitical risks may increase transportation costs, make it impossible to secure shipping capacity, or cause transportation delays, adversely affecting our production and sales activities, and in that case, the operating results, etc. of the MMC Group may be affected.

As the MMC Group conducts its business activities, we are exposed to credit risks in its dealings with dealers and with customers and other trading partners and in its automobile financing business. 

Regarding credit risk related to business partners, such as distributors, we strive to control risk by maintaining appropriate credit protection, while continuously evaluating country risk and the financial status of business partners. Moreover, we carry out strict credit screening and collection management for risks arising from the sales financing business to control the occurrence of bankruptcies and uncollectible receivables. However, if a loss stemming from such risk exceeds the MMC Group’s expectations due to a deterioration in the external environment, etc., the operating results, etc. of the MMC Group may be affected.

In addition to borrowing from financial institutions, the MMC Group issues commercial paper, etc. for financing. In order to prepare for increased demand for funds due to a deterioration in the business environment, MMC secures sufficient liquidity by setting up commitment lines at overseas subsidiaries in addition to commitment lines of credit worth about 272.0 billion yen, and strives to maintain good relationships with our main bank and other relevant financial institutions. However, if the MMC Group is unable to procure the necessary funds at appropriate terms in the financial markets due to an economic or financial crisis, etc. or due to a lowering of the MMC Group’s credit ratings, this may seriously impact the operating results, etc. of the MMC Group.

The MMC Group has facilities for development, manufacturing, sales, etc. in Japan and other parts of the world, and therefore, the occurrence of terrorism, war, civil war, political instability, deterioration in public security, etc. in these countries and regions may cause serious disruptions, such as interruption of operations of the MMC Group or its business partners. 

In anticipation of such a situation, the cross-functional economic security team prepares and executes measures to mitigate any possible obstacles, and if such an event should occur, a countermeasures meeting is established with the participation of the relevant divisions to address the situation from a company-wide, cross-functional perspective. 

However, if terrorism, war, civil war, political instability, deterioration in public security, or the like occurs on a larger scale than is expected, and when parts procurement, production and sales of products, logistics, etc. are delayed or stopped resulting in decreased revenue or increased costs, the operating results, etc. of the MMC Group may be affected.

Because the MMC Group has facilities for development, manufacturing, sales, and other bases in Japan and other parts of the world, natural disasters such as large-scale earthquakes, typhoons, torrential rains and floods, fires and other accidents, and outbreaks of infectious diseases in such countries and regions may cause serious disruptions, including interruption of the MMC Group’s operations or those of its suppliers. 

The BCM* Committee has formulated a business continuity plan, while also verifying the effectiveness through regular training and preparing for any emerging threats based on a scenario that would have a serious impact on the MMC Group’s operations. 

However, if facilities, such as manufacturing bases, are damaged due to a natural disaster, accident or spread of infectious disease on a scale larger than anticipated, or if the procurement of components, manufacture, sale and distribution of products, etc. are delayed or suspended, this may affect the operating results, etc. of the MMC Group. 

*: BCM is an abbreviation for “Business Continuity Management”