As of June 28, 2023
The following risk factors are the items concerning the management of the Nissan Shatai Group that may have a significant effect on the decisions of investors. This information does not include every risk factor of the Nissan Shatai Group and other problems that are difficult to foresee.
Risk factors concerning the future are based on judgments of the Nissan Shatai Group as of the end of March 2020, unless another date is specified, and these risk factors incorporate uncertainties. As a result, the actual effects of these issues may differ from this information.
The Risk Management Committee of the Nissan Shatai Group performs activities for preventing problems from happening, minimizing damage and losses when a problem occurs, and preventing problems from happening again. These activities are for risk factors involving the group’s strategies and business operations and risk factors such as, but not limited to, natural disasters, pandemics and terrorism that can have a significant impact on earnings and business activities,
Nissan Motor accounted for 98.3% of consolidated sales of the Nissan Shatai Group’s motor vehicles segment, which is the production of motor vehicle for parent company Nissan Motor Co., Ltd., in the fiscal year that ended in March 2020. Consequently, policy change or other action by Nissan Motor involving its sales strategies or policy for manufacturing may have a significant effect on the management policies, financial condition and performance of the Nissan Shatai Group. Management policies of Nissan Motor are taken into account when the Nissan Shatai Group establishes medium-term management plan. Furthermore, these plans are revised as needed to reflect changes in the business climate. The Nissan Shatai Board of Directors checks the process and the medium-term management plan. Major business relationships with Nissan Motor are explained in “Chapter 5 Accounting 1 Consolidated Financial Statements, Etc. (1) Notes to the Consolidated Financial Statements (Related Party Information)” of securities report.
Motor vehicle manufacturing in Japan, which is the business of the Nissan Shatai Group, has been declining over many years as automakers continue to move production to other overseas countries and they are shifting production to emerging countries where production costs are lower and transportation expenses are lower. For the Nissan Motor Group as well, competition among automakers worldwide for survival is continuing. In this environment, there are instances where the motor vehicles business of the Nissan Shatai Group competes with the production bases in Japan and other countries of the Nissan Motor Group.
If there is a significant change regarding the competitiveness of the Nissan Shatai Group within the Nissan Motor Group due to Nissan Motor’s change of its product strategy or some other action, there may be an effect on the financial condition and performance of the Nissan Shatai Group. In this event, there will be an even greater need to further upgrade the integrated manufacturing infrastructure that is one of the group’s key strengths and establish clear core technologies on a global scale. The 2023-2027 Medium-term Management Plan describes a group vision of “Contribute to society through our commercial vehicles, premium cars, specially equipped vehicles, and support businesses and become the one and only presence trusted by our customers” and addresses three priority issues of “sustainable corporate foundation,” “creation of appealing products,” and “evolution and deepening of uniqueness.” More information about the Medium-term Management Plan is explained in “Management Policies, Business Climate and Important Issues” of securities report.
As was explained in the preceding section, there is an ongoing competition for survival worldwide in the automobile industry. Achieving continuous and steady growth will require the pursuit of ambitious targets for quality, cost and strict adherence to delivery schedules as well as highly efficient manufacturing operations. Procuring products with even higher quality and more advanced technologies at even more competitive prices for this purpose would inevitably result in the concentration of orders on a small number of suppliers. Moreover, only a limited number of companies are capable of supplying products requiring unique technologies. For example, the global semiconductor supply crunch had a large impact on the production plan of Nissan Shatai. In order to minimize the risks, the company is continuously working on revising and strengthening the supply chain, taking measures such as considering substitute suppliers, including for the secondary, tertiary and later suppliers, ensuring sufficient inventories in the supply chain overall, etc.
There is a possibility of an unforeseen event such as the spread of COVID-19, etc. stopping or delaying the supply of items from a company or of a disruption of the supply chain because of a labor shortage or other reason. This is a weak point of the Nissan Shatai Group that could cause a suspension of operations and may affect the group’s financial condition and performance. Activities are under way to manage exposure to this risk by formulating a broad business continuity plan that encompasses the Nissan Shatai Group and many other companies. Elements include anticipating disasters and credit risk management based on constant assessments of the financial information of suppliers.
Demand for the products of the Nissan Shatai Group is affected by the level of sales by Nissan Motor, which purchases all of the group’s motor vehicles. Furthermore, the majority of motor vehicles produced by the group are sold outside Japan, mostly in North America, Central and South America, and the Middle East. Consequently, an economic downturn, imposition of trade restrictions, political instability or other event in these regions that causes a sudden drop in demand of vehicles that exceeds forecasts may have a significant effect on the Nissan Shatai Group’s financial position and performance. Nissan Shatai is constantly implementing activities to promote ales of vehicles that aims to collect information in every region of the world about what customers want in order to raise customer satisfaction by incorporating those wishes in vehicles. The goal is to increase production volume and sales by creation of appealing products. To improve the quality of vehicles, engineers have been sent from Japan to North America and the Middle East in order to directly examine vehicles that customers have taken back to a sales company due to a problem. This system allows constantly improving quality by facilitating the rapid feedback to Japan of information about vehicle problems and customer dissatisfaction.
The automobile industry is in the midst of a period of change of a magnitude that is said to happen only once in 100 years. At the heart of these changes are carbon neutrality and the C.A.S.E. themes of connectivity, autonomous (self-driving vehicles), sharing and service, and electric. For Nissan Shatai, a manufacturer of conventional motor vehicles, to achieve sustained growth in the business climate created by these changes, there must be activities for incorporating next-generation power trains and advanced technologies in the large number of vehicles made by Nissan Shatai that are reaching the end of long life cycles. If the pace of using next-generation technology is slow, there is a risk of vehicles made by Nissan Shatai losing their competitive edge or of competition with a new company as companies in other industries enter the automobile industry. These events may have a negative effect on the Nissan Shatai Group’s financial position and performance. Nissan Shatai is working on creating and using technologies that can be used for the production of next-generation vehicles. For upcoming vehicle events, a map is created for technologies and processes that will be required in each fiscal year and then actions are taken to add these technologies and processes. One result of these measures is the launch of vehicles that incorporate highly advanced safety systems like automatic emergency braking that reduces collision damage. As the Nissan Shatai Group looks ahead to the future of the LCV and frame-vehicle categories, activities will continue on themes for responding to social needs and for making vehicles more competitive as well as for the utilization of advanced ITS technology and other technologies.
Refer to the section on “sustainability, the environment, and realization of a decarbonized society” for an explanation of climate change-related risk.
There is a risk of a disruption of the Nissan Shatai Group’s business operations due to a major earthquake, fire, flood, volcanic eruptions, or other disaster. The group has a business continuity plan and is working on further improving this plan. Activities include seismic reinforcement of factory and other buildings and equipment, a system for confirming the safety of employees when a disaster occurs, and other measures. A major disaster may severely damage Nissan Shatai Group production facilities, equipment and other assets. This damage may stop business activities, resulting in production and shipment delays that reduce sales. There may also be substantial expenses to repair production and other facilities or establish an alternative way to resume business operations. As a result, there may be a negative effect on the group’s financial position and performance. To be prepared for these events, Nissan Shatai uses retained earnings for capital expenditures for new vehicles and higher productivity as well as for expenditures required following a major accident or disaster. Nissan Shatai is committed to establishing a framework for the sound and steady continuation of business operations even if there is an emergency involving any one of the variety of risk factors that pose a threat to business continuity. The business continuity plan defines the basic policy, structure, procedures and other items for the continuation of business operations in the event of an emergency.
If rapid infection spread (pandemic) occurs due to an outbreak of COVID-19 or a new virus, Nissan Shatai Group’s production sites might suffer from temporary halts or reduced production because of delays in parts supply due to cluster infections or lockdowns. If the situation continues in which production of vehicles face constraints, then there may a negative effect on the Nissan Shatai Group’s financial position and performance.
Similarly as for a major disaster, Nissan Shatai has established a business continuity plan for a pandemic, and business sites in Japan are continuing to take actions that comply with government and industry association guidelines for preventing the spread of infections. Nissan Shatai will continue stable operations while giving top priority to employee safety.
Almost all of the operations of the Nissan Shatai Group rely on information systems and networks, which are becoming increasingly complex and sophisticated. In fact, these systems and networks have become vital to the group's business activities. Major natural disasters, fires, power interruptions and other events continue to pose a significant threat to these systems and networks. Furthermore, there is a rapidly increasing risk associated with computer viruses, sophisticated hacking and other malicious activities. These activities may stop business operations due to an IT system malfunction or there may be a loss of important data, a theft of confidential or personal information, or other problems. These events may affect the Nissan Shatai Group's financial position, performance, and reputation as a reliable organization. To be prepared for these risks, the Nissan Shatai Group is taking many actions that cover information security policies and programs as well as hardware. This includes studies for the establishment of a business continuity plan, steps to improve information security measures, placing servers in several locations, and other measures.
The business activities of the Nissan Shatai Group are subject to the Companies Act, Corporation Tax Act, Financial Instruments and Exchange Act, labor laws and ordinances, Road Transport Vehicle Act, environmental laws and regulations, and other laws and regulations. Any violations of these laws and ordinances or any behavior that is inconsistent with ethics and social demands may result in penalties, litigation and social sanctions. Improper behavior may also have a negative effect on the reputation of Nissan Shatai that could reduce sales and have other consequences. The result could be a negative effect on the group’s financial position and performance.
Compliance problems are associated with every type of activity performed by all employees. Completely preventing a reoccurrence of a compliance incident is impossible unless all employees understand the true meaning of the importance of compliance and make this understanding a constant guideline for their behavior. As the number of laws, regulations and rules that must be followed rises steadily, there are also increasing expectations regarding corporate social responsibility.
To meet these expectations, Nissan Shatai has added compliance to its Code of Conduct and Medium-term Management Plan, is endeavoring to prevent memories of the final vehicle inspection issue fading, and has programs to reinforce awareness among all Nissan Shatai Group officers and employees of the importance of compliance in all business operations.
“Creation of appealing products” is the guiding policy of all members of the Nissan Shatai Group. To supply products with outstanding quality, the group has rigorous control systems at every stage from development to production and does everything possible to ensure the effectiveness of these systems.
However, the use of new technologies for even more added value can sometimes lead to unforeseeable quality issues even when these technologies have been thoroughly tested. This may later lead to product liabilities, recall campaigns and other problems. Although the Nissan Shatai Group has product liability insurance to ensure that compensation can be paid, this insurance does not necessarily cover all liability payments. Moreover, large-scale recalls required to assure customer safety may result in substantial losses and damage to the public perception of the Nissan brand. These events may have significant effect on the Nissan Shatai Group’s financial position and performance. The development, production and quality assurance sections of Nissan Shatai are working together in order to share information about quality issues and quickly determine the best possible solutions. To help determine appropriate and quick solutions for quality issues, there is also a Quality Committee chaired by the Nissan Shatai president that includes all officers and department general managers involved with quality.
The amounts of retirement benefit obligation and related expenses of the Nissan Shatai Group, which are provided for retirement benefits of employees of the Nissan Shatai Group companies, are calculated using various actuarial assumptions including the discount rate applied, the long-term projected rate of return on plan assets, and other factors. The value of these assets is affected by stock and bond market movements because the plan’s holdings include equities, bonds and other investments in Japan and other countries. Consequently, if the actual return differs from the assumption or if an assumption is revised, there will be a cumulative effect that must be recognized in future years systematically. This effect may have an impact on expenses and obligations recognized in the future. Nissan Shatai uses several asset management companies for the discretionary management of plan assets. Accounting personnel at Nissan Shatai monitor the performance of these companies. In addition, there is a Pension Plan Asset Management Oversight Committee consisting of human resources and accounting and finance and trade union representatives. This committee receives reports about the monitoring of the management of plan assets, confirms the suitability of the asset mix and how assets are managed, evaluates the performance of asset management companies and performs other tasks on a regular basis. The goals are to prevent conflicts of interest between the pension plan beneficiaries and Nissan Shatai and to maintain the soundness of the management of plan assets. To ensure that this system functions properly, human resources with the required experience and expertise are assigned to pension plan management and further trained in order to further develop their skills.
The Nissan Shatai Group has a large volume of plants, buildings, manufacturing equipment and other fixed assets. There is a risk that an impairment loss will have to be recognized if an investment is no longer expected to be recovered because of a decline in the value of the corresponding asset, or if the value of fixed assets declines because of a downturn in market conditions of the business where those assets are used, and in other events. These impairment losses may have a negative effect on the Nissan Shatai Group’s financial position and performance.
The Nissan Shatai Group uses the outlook for taxable income and tax planning in order to in the conclusion that there will not be sufficient taxable income in the future due to a decline in profitability, deferred tax assets will be reversed, resulting in a substantial tax expense (adjustment to deferred income taxes). This tax expense may have a negative effect on the Nissan Shatai Group’s financial position and performance.