PART I

Dividend Information

Toyota normally pays dividends twice per year, including an interim dividend and a year-end dividend. Toyota’s articles of incorporation provide that retained earnings can be distributed as dividends pursuant to a resolution of its board of directors. Toyota’s board of directors resolves to pay year-end dividends to holders of common stock and registered pledgees of common stock of record as of March 31, the record date, in each year.

At the 111th Ordinary General Shareholders’ Meeting held in June 2015, Toyota’s shareholders approved amendments to Toyota’s articles of incorporation permitting the issuance of Model AA Class Shares in the future. Toyota resolved at its board of directors meeting held on December 14, 2020 to exercise Toyota’s cash call option to acquire all outstanding First Series Model AA Class Shares and, subject to such acquisition, to cancel all First Series Model AA Class Shares pursuant to the Companies Act of Japan (the “Companies Act”). Toyota completed the acquisition of all outstanding First Series Model AA Class Shares on April 2, 2021 and cancelled them on April 3, 2021. At the 117th Ordinary General Shareholders’ Meeting held in June 2021, Toyota’s shareholders approved amendments to Toyota’s articles of incorporation to, among other things, eliminate the First Series Model AA Class Shares through the Fifth Series Model AA Class Shares as classes of Toyota’s capital stock, effective June 16, 2021. Prior to the June 16, 2021 amendment, the articles of incorporation provided that, in the event that Toyota paid a year-end dividend to holders of common stock, it would pay a year-end dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares of record as of the record date for the year-end dividend, in the amount payable on the Model AA Class Shares pursuant to their terms (“AA Dividends”), in preference to holders of common stock or registered pledgees of common stock.

In addition to these year-end dividends, Toyota may pay an interim dividend in the form of cash distributions from its distributable surplus to holders of common stock and pledgees of common stock of record as of September 30, the record date, in each year by a resolution of its board of directors. Prior to the June 16, 2021 amendment, the articles of incorporation provided that, in the event that Toyota paid such interim dividends, Toyota would pay an amount equivalent to one-half of the AA Dividends (“AA Interim Dividends”) as an interim dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares of record as of the record date for the interim dividend, in preference to holders of common stock or registered pledgees of common stock.

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In addition, under the Companies Act, dividends may be paid to holders of common stock and pledgees of record of common stock as of any record date, other than those specified above, as set forth in Toyota’s articles of incorporation or as determined by its board of directors from time to time. Under the Companies Act, dividends may be distributed in cash or (except in the case of interim dividends mentioned in the third preceding paragraph) in kind, subject to limitations on distributable surplus and to certain other conditions.

The following table sets forth the dividends declared per share of common stock by Toyota for each of the periods shown. The periods shown are the six months ended on that date. The U.S. dollar equivalents for the cash dividends shown are based on the noon buying rate for Japanese yen on the last date of each period set forth below.

Toyota deems the benefit of its shareholders as one of its priority management policies, and it continues to work to improve its corporate structure to realize sustainable growth in order to enhance its corporate value. Toyota will strive for the stable and continuous payment of dividends, seeking to maintain and improve upon the consolidated payout ratio of 30% to its shareholders.

With a view to surviving tough competition and transitioning to a mobility company, Toyota will utilize its internal funds mainly for investment in growth for the next generation such as environmental technologies to achieve a carbon neutral society and safety technologies for the safety and security of its customers. Considering these factors, with respect to the dividends for fiscal 2021, Toyota has determined to pay a year-end dividend of 135 yen per share of common stock by a resolution of the board of directors pursuant to Toyota’s articles of incorporation. As a result, combined with the interim dividend of 105 yen per share of common stock, the annual dividend will be 240 yen per share of common stock, and the total amount of the dividends on common stock for the year will be 671.0 billion yen. Furthermore, Toyota resolved, at its board of directors meeting held on May 12, 2021, to repurchase a maximum of 41 million shares of its common stock at a total maximum amount of 250 billion yen. Toyota will flexibly repurchase shares with the aim to promote capital efficiency by comprehensively taking into consideration its investment in growth, level of its dividends, its cash reserves and the price level of its common stock.

3.B CAPITALIZATION AND INDEBTEDNESS

Not applicable.

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3.C REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

3.D RISK FACTORS

Industry and Business Risks

The worldwide automotive market is highly competitive.

The worldwide automotive market is highly competitive. Toyota faces intense competition from automotive manufacturers in the markets in which it operates. Competition in the automotive industry has further intensified amidst difficult overall market conditions. In addition, competition is likely to further intensify in light of further continuing globalization in the worldwide automotive industry, possibly resulting in industry reorganizations. Factors affecting competition include product quality and features, safety, reliability, fuel economy, the amount of time required for innovation and development, pricing, customer service and financing terms. Increased competition may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyota’s financial condition and results of operations. Toyota’s ability to adequately respond to the recent rapid changes in the automotive market and to maintain its competitiveness will be fundamental to its future success in existing and new markets and to maintain its market share. There can be no assurances that Toyota will be able to compete successfully in the future.

The worldwide automotive industry is highly volatile.

Each of the markets in which Toyota competes has been subject to considerable volatility in demand. Demand for vehicles depends to a large extent on economic, social and political conditions in a given market and the introduction of new vehicles and technologies. As Toyota’s revenues are derived from sales in markets worldwide, economic conditions in such markets are particularly important to Toyota.

Reviewing the general economic environment for the fiscal year ended March 2021, due to the impact of COVID-19 continuing from the previous fiscal year, the economy faced a sharp slowdown and hit a bottom from April to June 2020. Due to economic activities resuming and stimulus measures taken in many countries, from July 2020, the economy gradually recovered, but growth remained low throughout fiscal 2021. Many automotive markets, other than China and certain other regions where the impact of COVID-19 was limited, recorded significantly lower results than that of the previous fiscal year, due partly to the impact of the suspension of operations at factories and business at dealers worldwide.

The changes in demand for automobiles are continuing, and it is unclear how this situation will transition in the future. Toyota’s financial condition and results of operations may be adversely affected if the changes in demand for automobiles continues or progresses further. Demand may also be affected by factors directly impacting vehicle price or the cost of purchasing and operating vehicles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations (including tariffs, import regulation and other taxes). Volatility in demand may lead to lower vehicle unit sales, which may result in downward price pressure and adversely affect Toyota’s financial condition and results of operations.

Toyota’s future success depends on its ability to offer new, innovative and competitively priced products that meet customer demand on a timely basis.

Meeting customer demand by introducing attractive new vehicles and reducing the amount of time required for product development are critical to automotive manufacturers. In particular, it is critical to meet customer demand with respect to quality, safety and reliability. The timely introduction of new vehicle models, at competitive prices, meeting rapidly changing customer preferences and demand is more fundamental to Toyota’s success than ever, as the automotive market is rapidly transforming in light of the changing global economy. There is no assurance, however, that Toyota will adequately and appropriately respond to changing customer

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preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner. Even if Toyota succeeds in perceiving customer preferences and demand, there is no assurance that Toyota will be capable of developing and manufacturing new, price competitive products in a timely manner with its available technology, intellectual property, sources of raw materials and parts and components, and production capacity, including cost reduction capacity. Further, there is no assurance that Toyota will be able to implement capital expenditures at the level and times planned by management. Toyota’s inability to develop and offer products that meet customers’ preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner could result in a lower market share and reduced sales volumes and margins, and may adversely affect Toyota’s financial condition and results of operations.

Toyota’s ability to market and distribute effectively is an integral part of Toyota’s successful sales.

Toyota’s success in the sale of vehicles depends on its ability to market and distribute effectively based on distribution networks and sales techniques tailored to the needs of its customers. There is no assurance that Toyota will be able to develop sales techniques and distribution networks that effectively adapt to changing customer preferences or changes in the regulatory environment in the major markets in which it operates. Toyota’s inability to maintain well-developed sales techniques and distribution networks may result in decreased sales and market share and may adversely affect its financial condition and results of operations.

Toyota’s success is significantly impacted by its ability to maintain and develop its brand image.

In the highly competitive automotive industry, it is critical to maintain and develop a brand image. In order to maintain and develop a brand image, it is necessary to further increase customers’ confidence by providing safe, high-quality products that meet customer preferences and demand. If Toyota is unable to effectively maintain and develop its brand image as a result of its inability to provide safe, high-quality products or as a result of the failure to promptly implement safety measures such as recalls when necessary, vehicle unit sales and/or sale prices may decrease, and as a result revenues and profits may not increase as expected or may decrease, adversely affecting its financial condition and results of operations.

Toyota relies on suppliers for the provision of certain supplies including parts, components and raw materials.

Toyota purchases supplies including parts, components and raw materials from a number of external suppliers located around the world. For some supplies, Toyota relies on a single supplier or a limited number of suppliers, whose replacement with another supplier may be difficult. Inability to obtain supplies from a single or limited source supplier may result in difficulty obtaining supplies and may restrict Toyota’s ability to produce vehicles. Furthermore, even if Toyota were to rely on a large number of suppliers, first-tier suppliers with whom Toyota directly transacts may in turn rely on a single second-tier supplier or limited second-tier suppliers. Toyota’s ability to continue to obtain supplies from its suppliers in a timely and cost-effective manner is subject to a number of factors, some of which are not within Toyota’s control. These factors include the ability of Toyota’s suppliers to provide a continued source of supply, and Toyota’s ability to effectively compete and obtain competitive prices from suppliers. A loss of any single or limited source supplier or inability to obtain supplies from suppliers in a timely and cost-effective manner could lead to increased costs or delays or suspensions in Toyota’s production and deliveries, which could have an adverse effect on Toyota’s financial condition and results of operations.

The worldwide financial services industry is highly competitive.

The worldwide financial services industry is highly competitive^. Increased competition in automobile financing may lead to decreased margins. A decline in Toyota’s vehicle unit sales, an increase in residual value risk due to lower used vehicle prices, an increase in the ratio of credit losses and increased funding costs are additional factors which may impact Toyota’s financial services operations. If Toyota is unable to adequately respond to the changes and competition in automobile financing, Toyota’s financial services operations may adversely affect its financial condition and results of operations.

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Toyota’s operations and vehicles rely on various digital and information technologies.

Toyota depends on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, including sensitive data, and to manage or support a variety of business processes and activities, including manufacturing, research and development, supply chain management, sales and accounting. In addition, Toyota’s vehicles may rely on various digital and information technologies, including information service and driving assistance functions. Despite security measures, Toyota’s digital and information technology networks and systems may be vulnerable to damage, disruptions, shutdowns due to unauthorized access or attacks by hackers, computer viruses, breaches due to unauthorized use, errors or malfeasance by employees and others who have or gain access to the networks and systems Toyota depends on, service failures or bankruptcy of third parties such as software development or cloud computing vendors, power shortages and outages, and utility failures or other catastrophic events like natural disasters. In particular, cyber-attacks or other intentional malfeasance are increasing in terms of intensity, sophistication and frequency, and Toyota may be the subject of such attacks. Such attacks could materially disrupt critical operations, disclose sensitive data, interfere with information services and driving assistance functions in Toyota’s vehicles, and/or give rise to legal claims or proceedings, liability or regulatory penalties under applicable laws, which could have an adverse effect on Toyota’s brand image and its financial condition and results of operations.

Financial Market and Economic Risks

Toyota’s operations are subject to currency and interest rate fluctuations.

Toyota is sensitive to fluctuations in foreign currency exchange rates and is principally exposed to fluctuations in the value of the Japanese yen, the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Russian ruble, the Canadian dollar and the British pound. Toyota’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange fluctuations through translation risk, and changes in foreign currency exchange rates may also affect the price of products sold and materials purchased by Toyota in foreign currencies through transaction risk. In particular, strengthening of the Japanese yen against the U.S. dollar can have an adverse effect on Toyota’s operating results.

Toyota believes that its use of certain derivative financial instruments including foreign exchange forward contracts and interest rate swaps and increased localized production of its products have reduced, but not eliminated, the effects of interest rate and foreign currency exchange rate fluctuations. Nonetheless, a negative impact resulting from fluctuations in foreign currency exchange rates and changes in interest rates may adversely affect Toyota’s financial condition and results of operations. For a further discussion of currency and interest rate fluctuations and the use of derivative financial instruments, see “Operating and Financial Review and Prospects — Operating Results — Overview — Currency Fluctuations,” “Quantitative and Qualitative Disclosures About Market Risk,” and notes 21 and 22 to Toyota’s consolidated financial statements.

High prices of raw materials and strong pressure on Toyota’s suppliers could negatively impact Toyota’s profitability.

Increases in prices for raw materials that Toyota and Toyota’s suppliers use in manufacturing their products or parts and components such as steel, precious metals, non-ferrous alloys including aluminum, and plastic parts, may lead to higher production costs for parts and components. This could, in turn, negatively impact Toyota’s future profitability because Toyota may not be able to pass all those costs on to its customers or require its suppliers to absorb such costs.

A downturn in the financial markets could adversely affect Toyota’s ability to raise capital.

Should the world economy suddenly deteriorate, a number of financial institutions and investors will face difficulties in providing capital to the financial markets at levels corresponding to their own financial capacity,

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and, as a result, there is a risk that companies may not be able to raise capital under terms that they would expect to receive with their creditworthiness. If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, Toyota’s financial condition and results of operations may be adversely affected.

Regulatory, Legal, Political and Other Risks

The automotive industry is subject to various governmental regulations and actions.

The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. In particular, automotive manufacturers such as Toyota are required to implement safety measures such as recalls for vehicles that do not or may not comply with the safety standards of laws and governmental regulations. In addition, Toyota may, in order to reassure its customers of the safety of Toyota’s vehicles, decide to voluntarily implement recalls or other safety measures even if the vehicle complies with the safety standards of relevant laws and governmental regulations. If Toyota launches products that result in safety measures such as recalls (including where parts related to recalls or other measures were procured by Toyota from a third party), Toyota may incur various costs including significant costs for free repairs. Many governments also impose tariffs and other trade barriers, taxes and levies, or enact price or exchange controls. Toyota has incurred significant costs in response to governmental regulations and actions, including costs relating to changes in global trade dynamics and policies, and expects to incur such costs in the future. Furthermore, new legislation or regulations or changes in existing legislation or regulations may also subject Toyota to additional costs in the future. If Toyota incurs significant costs related to implementing safety measures or responding to laws, regulations and governmental actions, Toyota’s financial condition and results of operations may be adversely affected.

Toyota may become subject to various legal proceedings.

As an automotive manufacturer, Toyota may become subject to legal proceedings in respect of various issues, including product liability and infringement of intellectual property. Toyota may also be subject to legal proceedings brought by its shareholders and governmental proceedings and investigations. Toyota is in fact currently subject to a number of pending legal proceedings and government investigations. A negative outcome in one or more of these pending legal proceedings could adversely affect Toyota’s financial condition and results of operations. For a further discussion of governmental regulations, see “Information on the Company — Business Overview — Governmental Regulation, Environmental and Safety Standards” and for legal proceedings, please see “Information on the Company — Business Overview — Legal Proceedings.”

Toyota may be adversely affected by natural calamities, epidemics, political and economic instability, fuel shortages or interruptions in social infrastructure, wars, terrorism and labor strikes.

Toyota is subject to various risks associated with conducting business worldwide. These risks include natural calamities; epidemics; political and economic instability; fuel shortages; interruption in social infrastructure including energy supply, transportation systems, gas, water, or communication systems resulting from natural hazards or technological hazards; wars; terrorism; labor strikes and work stoppages. Should the major markets in which Toyota purchases materials, parts and components and supplies for the manufacture of Toyota products or in which Toyota’s products are produced, distributed or sold be affected by any of these events, it may result in disruptions and delays in the operations of Toyota’s business. Should significant or prolonged disruptions or delays related to Toyota’s business operations occur, it may adversely affect Toyota’s financial condition and results of operations.

Toyota has been, and is expected to continue to be, adversely affected by the spread of COVID-19.

The global spread of COVID-19 and the responses to it by governments and other stakeholders have adversely affected Toyota in a number of ways. For example, for reasons such as government directives as well

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as anticipated reduced demand for its vehicles, Toyota has temporarily suspended, or intends to temporarily suspend, production of automobiles and components at selected plants in Japan and overseas. COVID-19 has also affected, and is expected to continue to affect, the businesses of Toyota dealers and distributors, as well as certain of Toyota’s third-party suppliers and business partners. In addition, the global spread of COVID-19 and related matters have adversely affected businesses in a wide variety of industries, as well as consumers, all of which negatively impacted demand for Toyota’s vehicles and related financial services.

The duration of the COVID-19 outbreak and the resulting future effects are uncertain, and the foregoing impacts and other effects not referenced above, as well as the ultimate impact of the COVID-19 outbreak, are difficult to predict. The impact of the COVID-19 outbreak and the resulting future effects may thus adversely affect Toyota’s financial condition and results of operations in later periods as well.

Toyota’s automotive operations include the design, manufacture, assembly and sale of passenger vehicles, minivans and commercial vehicles such as trucks and related parts and accessories. Toyota’s financial services business consists primarily of providing financing to dealers and their customers for the purchase or lease of Toyota vehicles. Toyota’s financial services business also provides mainly retail installment credit and leasing through the purchase of installment and lease contracts originated by Toyota dealers. Related to Toyota’s automotive operations, Toyota is working towards having all of its vehicles become connected vehicles, creating new value and reforming businesses by utilizing big data obtained from those connected vehicles, and establishing new mobility services. Toyota’s all other operations business segment includes the information technology related businesses including a web portal for automobile information called GAZOO.com, etc. Please see “— Automotive Operations — Realizing a Smart Mobility Society that expands through connected car technologies — Connected with people (COMFORT) — Connected Service” for details on GAZOO.com.

Toyota sells its vehicles in approximately 200 countries and regions. Toyota’s primary markets for its automobiles are Japan, North America, Europe and Asia. The following table sets forth Toyota’s sales to external customers in each of its geographical markets for each of the past two fiscal years.

During fiscal 2021, 27.8% of Toyota’s automobile unit sales on a consolidated basis were in Japan, 30.3% were in North America, 12.5% were in Europe and 16.0% were in Asia. The remaining 13.4% of consolidated unit sales were in other markets.

The Worldwide Automotive Market

Toyota estimates that annual worldwide vehicle sales totaled approximately 80 million units in 2020.

Automobile sales are affected by a number of factors including:

These factors can cause consumer demand to vary substantially from year to year in different geographic markets and in individual categories of automobiles.

In fiscal 2021, except in China, which contained the outbreak of COVID-19 at an early stage, the world economy experienced a year-on-year contraction in both developed and emerging countries due to the global spread of COVID-19, as well as stay-at-home orders and voluntary stay-at-home efforts to control the outbreak, causing a difficult situation in which many countries in the world were driven into an unprecedented crisis requiring public spending and the launch of substantial monetary easing measures. The United States saw a recovery thanks to major stimulus measures and monetary easing policy. In Europe, resurgences of new cases and repeated lockdowns caused economic stagnation. In Japan, amid an economic slowdown caused by the consumption tax increase in October 2019, the economy experienced a sharp slowdown owing to the state of

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emergency issued and voluntary stay-at-home efforts in relation to the outbreak of COVID-19; the resurgences of new cases also delayed economic recovery. China, which succeeded in the early containment of the spread of COVID-19, enjoyed a rapid recovery from mid-2020 spurred partly by pent-up demand related to COVID-19 and government measures. However, emerging countries in Asia and other regions also saw an economic slowdown owing to sluggish demand from abroad and travel restrictions.

The automotive industry was also impacted by the foregoing factors and experienced a year-on-year contraction for the third straight year, resulting in a greater market contraction than during the 2008 financial crisis. Both developed and emerging countries generally recorded year-on-year contractions, including China, which achieved an early economic recovery, recorded a year-on-year contraction for the third straight year. Developed markets, whose governments have sufficient financial capacity, have generally recovered more quickly than emerging markets, and the speed of recovery has varied from country to country, as it is affected by the prevalence and severity of infections.

In the medium- to long-term, Toyota expects the automotive market to continue growing driven principally by growth in China and other emerging markets. However, global competition is expected to be severe, as the pace of technological advancement and development of new products, particularly related to electrification, quickens further, including in response to a heightened global awareness of the environment with a view to carbon neutrality and the strengthening of various standards in line with such awareness.

In 2020, China, North America, Europe and Asia were the world’s largest automotive markets. The share of each market across the globe, which Toyota estimates based on the available automobile sales data in each country and region information, was 32% for China, 22% for North America (21% excluding Mexico and Puerto Rico), 21% for Europe and 10% for Asia. In China, new vehicle sales decreased for the third straight year to approximately 25.2 million units. In North America, new vehicle sales were approximately 17.1 million units, down from the previous year. In Europe, new vehicle sales also decreased from the previous year at approximately 16.6 million units. In Asia (including India but excluding Japan and China), new vehicle unit sales also decreased from the previous year to approximately 8.1 million units.

The worldwide automotive industry is affected significantly by government regulations aimed at reducing harmful effects on the environment, enhancing vehicle safety and improving fuel economy. These regulations have added to the cost of manufacturing vehicles. Many governments also mandate local procurement of parts and components and impose tariffs and other trade barriers, as well as price or exchange controls as a means of creating jobs, protecting domestic producers or influencing their balance of payments. Changes in regulatory requirements and other government-imposed restrictions can limit or otherwise burden an automaker’s operations. Government laws and regulations can also make it difficult to repatriate profits to an automaker’s home country.

The development of the worldwide automotive market includes the continuing globalization of automotive operations. Manufacturers seek to achieve globalization by localizing the design and manufacture of automobiles and their parts and components in the markets in which they are sold. By expanding production capabilities beyond their home markets, automotive manufacturers are able to reduce their exposure to fluctuations in foreign exchange rates, as well as to trade restrictions and tariffs.

Over the years, there have been many global business alliances and investments entered into between manufacturers in the global automotive industry. There are various reasons behind these transactions including the need to address excessive global capacity in the production of automobiles, and the need to reduce costs and improve efficiency by increasing the number of automobiles produced using common vehicle platforms and by sharing research and development expenses for environmental and other technology, the desire to expand a company’s global presence through increased size; and the desire to expand into particular segments or geographic markets.

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Toyota believes that its research and development initiatives, particularly the development of environmentally friendly new vehicle technologies, vehicle safety and information technology, provide it with a strategic advantage.

Toyota’s ability to compete in the global automotive industry will depend in part on Toyota’s successful implementation of its business strategy. This is subject to a number of factors, some of which are not in Toyota’s control. These factors are discussed in “Operating and Financial Review and Prospects” and elsewhere in this annual report.

Toyota Global Vision

In March 2011, Toyota unveiled its “Toyota Global Vision” corporate outline for the future, which serves not only to give direction to Toyota employees around the world, but also to convey such direction to customers and to the public at large. Toyota will work to achieve sustained growth through the realization of the following ideals which are parts of the Vision:

Toyota Global Vision

Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people.

Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile.

We will meet challenging goals by engaging the talent and passion of people, who believe there is always a better way.

“The safest and most responsible ways of moving people”

“Enriching lives around the world”

“Lead the way to the future of mobility”

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“Our commitment to quality, constant innovation”

“Respect for the planet”

“Exceed expectations and be rewarded with a smile”

“There is always a better way”

“Meet challenging goals by engaging the talent and passion of people”

Based on these initiatives, the Toyota group will contribute to “enriching lives of communities” by providing “ever-better cars.” This is expected to encourage more customers to purchase Toyota cars and thereby lead to the establishment of a stable business base.

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Toyota Philosophy

In order to advance its transition to a mobility company, Toyota has reflected on the path it has taken thus far and has formulated the “Toyota Philosophy” as a roadmap for the future.

Toyota’s mission is “Producing Happiness for All” by expanding the possibilities of people, companies and communities through addressing the challenges of mobility as a mobility company. In order to do so, Toyota will continue to create new and unique value with various partners by relentlessly committing towards monozukuri (manufacturing), and by fostering imagination for people and society.

		MISSION		Producing Happiness for All Using our technology, we work towards a future of convenience and happiness, available to all
		VISION		Creating Mobility for All Toyota strives to raise the quality and availability of mobility so that individuals, businesses, municipalities and communities can do more, while achieving a sustainable relationship with our planet
		VALUE		We unite our three strengths (Software, Hardware and Partnerships) to create new and unique value that comes from the Toyota Way

Selected Initiatives

As the automotive industry faces a once-in-a-century transformational period, Toyota has once again returned to its founding philosophy, summarizing the spirit it has maintained since the creation of the “Toyoda Precepts” to formulate the “Toyota Philosophy” as its signpost for an era when the future is difficult to foresee. Toyota has defined its mission as “Producing Happiness for All,” and has made clear its view that it will continue to pursue its customers’ happiness, even if the products it produces change. Toyota believes that taking action to realize its vision of creating “mobility for all” translates into taking care of our “home planet,” similar to our hometown or home country, and leads to sustained efforts to achieve the aims of the SDGs to “build a better world” while ensuring that “no one will be left behind.”

Toyota is accelerating its efforts to address carbon neutrality and other social challenges, and to manage rapid technological innovations such as automated driving and connected vehicles. Toyota is also promoting digitalization as a platform for open collaboration with a wide range of companies, and creating an environment for obtaining necessary information when needed. The following are the details of Toyota’s efforts that Toyota is focusing on in particular.

Electrification

It is essential to promote the electrification of vehicles to achieve carbon neutrality. The Toyota group continues to contribute to the reduction of CO₂ emissions by offering various options such as hybrid electric vehicles (“HEVs”),

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plug-in hybrid electric vehicles (“PHEVs”), battery electric vehicles (“BEVs”), and fuel cell electric vehicles (“FCEVs”) according to customer needs that may vary depending on the energy situation, infrastructure development status and uses of vehicles in each country or region, and by further promoting the popularization of electrified vehicles. Since the rollout of the first-generation Prius, Toyota has developed a full lineup of electrified vehicles without being satisfied with just HEVs, a single technology, and now offers a wide range of electrified vehicles worldwide, including 45 HEV models, 4 PHEV models, 4 BEV models and 2 FCEV models.

For HEVs, which are Toyota’s main type of electrified vehicles, Toyota will improve the performance of the Toyota Hybrid System and develop various models, such as high-powered models and simplified models, and thereby expand its product lineup that meets various needs. To expand the sales of electrified systems, Toyota will work with BluE Nexus Corporation to increase its competitiveness in products related to electrification, as well as to enhance its technical support and services provided to its customers.

With regard to BEVs, Toyota launched the two-seater “C+pod” ultra-compact battery electric vehicle to corporate users, local governments and other organizations in Japan, with a view to build new business models. Toyota will take this opportunity to provide new services unique to BEVs in an empirical manner. In China, Toyota launched the “C-HR EV” and “IZOA EV,” the first BEVs to be launched under the Toyota brand. Furthermore, Toyota is planning to launch 15 models, including 7 models of the “Toyota bZ series,” globally by 2025.

In order to promote the use of hydrogen, including the use of FCEVs, in addition to marketing the “MIRAI,” which has achieved significant improvements in performance, Toyota will also develop a product that packages a fuel cell (“FC”) system into a compact module, and work with various FC product companies to promote the widespread use of FC technologies in a variety of applications, including mobility such as trucks, buses, trains and ships, as well as stationary generators. Toyota has also established the Japan Hydrogen Association and is working to find new partners to make, carry and use hydrogen. Furthermore, Toyota is working to “make ever-better cars” through motorsports and took on new challenges towards carbon neutrality. For example, in May 2021, Toyota completed laps in a 24-hour endurance race with its Corolla, which is installed with hydrogen engines that generate power through the combustion of hydrogen.

In addition to promoting the spread of electrified vehicles, Toyota will work to utilize hydrogen engines and carbon neutral fuels, and create a carbon neutral society for the entire life cycle from production through sales, disposal and recycling.

Safety and automated driving

The Toyota group is engaged in the development and promotion of automated driving technology with the aim of completely eliminating traffic injuries and fatalities and providing safe, secure and smooth mobility to all. The development philosophy, “Mobility Teammate Concept,” is about building relationships between people and vehicles as if they were teammates. The new LS and new MIRAI are equipped with the new Advanced Drive function of Lexus Teammate and Toyota Teammate, the latest in Toyota’s advanced driving assist technologies, to assist diving operations on expressways and motor-vehicle-only roadways. In order to provide our safety technologies to more customers, Toyota is also adopting its latest preventive safety package for new models and developing a new “Acceleration Suppression Function.”

Furthermore, Toyota started to offer free access to its “THUMS” virtual human body model software, which enables computer simulation and analysis of injuries caused in vehicle collisions, for use by a wide variety of users from 2021. Through this, Toyota is working to further enhance vehicle safety across the entire automotive industry, and to help realize a safe society.

Connected cars and MaaS

The Toyota group is expanding and developing new functions for its Mobility Service Platform (MSPF), an ecosystem for openly providing various functions needed for mobility services. Going forward, Toyota will

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expand its collaboration with Amazon Web Services, Inc. and enhance its foundations for accumulating and using MSPF’s big data in readiness for the huge volume of data transactions expected in the future. At the same time, Toyota will build a foundation for streamlined and secure group-wide sharing of big data. Also, as a new function on the MSPF, Toyota has developed an operations management system to support the provision of services that will enable practical use of the e-Palette, a BEV for autonomous mobility, as a service (Autono-MaaS) applications.*

In anticipation of the coming future society in which towns, homes, people and cars are all connected, Toyota will address social challenges through the development of new services that enrich people’s lives and the utilization of big data.

Software First

In order to provide new technologies and services to its customers in a timely manner, Toyota will make a shift from the conventional hardware-driven vehicle development to a “software first” approach that undertakes product development starting with software. The launching of the new LS and new MIRAI equipped with “Advanced Drive” in April 2021 is its first step in achieving its concept of “software first.” Even after customers purchase its products, Toyota will continue to improve safety and add new functions through software updates. As a basis of these software updates, vehicles will be equipped with state-of-the-art hardware with high performance in perception, calculation, and reliability (or redundancy). Through these means, Toyota will provide even greater added value to its customers.

The software platform that will form the foundation for new development, “Arene,” will accelerate development and enable the verification of safety, application to various applications, and collaborations with numerous partners. In addition, Toyota’s Automated Mapping Platform gathers information on the cloud and creates maps that are updated accurately in real time, on a global scale.

In order to effectively and efficiently enhance this type of development capabilities, in January 2021, Toyota Research Institute — Advanced Development, Inc. (“TRI-AD”) transitioned to a new structure consisting of Woven Planet Holdings, Inc., a holding company, Woven Core, Inc. and Woven Alpha, Inc., both operating companies, and Woven Capital, L.P., an investment fund. Under the vision of “Mobility to Love, Safety to Live,” Toyota will move forward with its development efforts with the goal of providing safety, security and freedom of mobility to everyone.

Woven City

Woven City, announced in January 2020, got off to a new start after the groundbreaking ceremony held on February 23, 2021.

Toyota will develop a site at Toyota Motor East Japan, Inc.’s Higashi Fuji Plant to create a living laboratory where it can introduce and verify technologies such as automated driving, MaaS, personal mobility, robotics, smart homes and artificial intelligence (“AI”) in a real-world environment that people live in. In anticipation of an era in which all goods and services that support people’s lives will be connected, its aim is to continue creating new value and business models by speeding up the cycle of development and verification of technologies and services in this city. Woven City will be an “ever-evolving city” that is constantly improving, by adopting Toyota’s Kaizen method, which is to think that “there is always a better way.”

By centering on people and imagining the life of each resident, and by demonstrating future technologies in both the virtual and real world, Toyota believes that it can propose new value and lifestyles for the mobility of people, goods and information. Toyota will work with various partner companies and researchers to create the new city in its quest to create an even-better way of life and mobility for all.

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Toyota Environmental Challenge 2050

Positioning responding to environmental issues as one of the most prioritized challenges for management, Toyota has tackled head-on activities, such as the development and promotion of electrified vehicles including HEVs and FCEVs, efficient production that puts less of a burden on the environment, appropriate treatment of end-of-life vehicles and the recycling of hybrid vehicle batteries, and planting trees and ecosystem conservation for the coexistence of humans and nature in harmony.

However, in recent years, the seriousness of environmental issues has increased globally, as evidenced by climate change, water shortages, resource depletion, and degradation of biodiversity. In response to the situation, Toyota believes it is necessary to take on new challenges that consider the world 20 or 30 years in the future, in order to remain closely aligned with the global environment. Accordingly, Toyota announced Toyota Environmental Challenge 2050 in October 2015.

In order to contribute to the realization of a sustainable society, the Toyota Environmental Challenge 2050 has set forth the six challenges listed below for Toyota to address. Those challenges are to reduce CO₂ emissions from driving and producing, as well as throughout the lifecycle of, vehicles, and to ensure a net positive impact on the Earth and society toward 2050. By combining those challenges with short and medium-term targets to be set as necessary, Toyota is steadily engaged in such initiatives.

In addition, in September 2018, Toyota announced the 2030 Milestone, which indicates Toyota’s milestones for each of the six challenges as of 2030. We will also strengthen collaboration with all stakeholders, consolidate new ideas, dynamism and technology in concert with the Toyota Environmental Action Plan, which lays out specific action plans and targets for every five-year period, to contribute to the realization of a truly sustainable society from a long-term perspective.

In April 2020, Toyota announced the Seventh Toyota Environmental Action Plan — 2025 Target, which sets specific action plans and targets for a five-year period, beginning from 2021, in order to achieve the Environmental Challenge 2050. Toyota also announced a guideline for annual global sales of electrified vehicles in 2030 in connection with the New Vehicle Zero CO₂ Emissions Challenge in May 2021, and announced a new target for 2035 with respect to the Plant Zero CO₂ Emissions Challenge in June 2021.

2025 Target:

As of May 2021, Toyota announced a guideline for annual global sales of electrified vehicles in 2030 of approximately 8 million units, including a combined total of approximately 2 million BEVs and FCEVs, based on certain assumptions, such as future laws and regulations of various countries and the status of the spread of renewable energy. Toyota will continue to promote the popularization of electrified vehicles to contribute to the realization of carbon neutrality.

2030 Milestone:

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2025 Target:

2025 Target:

In addition, in June 2021, as part of its important manufacturing activities that will pave the way for the future, Toyota announced that it will take on various challenges to make its global plants carbon neutral by 2035.

2030 Milestone:

2025 Target:

Water quantity

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Water quality

2030 Milestone:

2025 Target:

2030 Milestone:

2025 Target:

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Automotive Operations

Toyota’s sales revenues from its automotive operations were ¥24,651.5 billion in fiscal 2021 and ¥26,799.7 billion in fiscal 2020.

Toyota produces and sells passenger vehicles, minivans and commercial vehicles such as trucks. Toyota Motor Corporation’s subsidiary, Daihatsu Motor Co., Ltd. (“Daihatsu”), produces and sells mini-vehicles and compact cars. Hino Motors, Ltd. (“Hino”), also a subsidiary of Toyota Motor Corporation, produces and sells commercial vehicles such as trucks and buses. Toyota also manufactures automotive parts, components and accessories for its own use and for sale to others.

Vehicle Models

Toyota’s vehicles (produced by Toyota, Daihatsu and Hino) can be classified largely into electrified vehicles and conventional engine vehicles. Toyota’s product line-up includes subcompact and compact cars, mini-vehicles, mid-size, luxury, sports and specialty cars, recreational and sport-utility vehicles, pickup trucks, minivans, trucks and buses.

Electrified Vehicles

HEVs and PHEVs

The world’s first mass-produced hybrid car was Toyota’s Prius. It runs on an efficient combination of a gasoline engine and motor. This system allows the Prius to travel more efficiently than conventional engine vehicles of comparable size and performance. The hybrid design of the Prius also results in the output of 75% less emission than the maximum amount allowed by Japanese environmental regulations. Toyota views the Prius as the cornerstone of its emphasis on designing and producing eco-friendly automobiles.

In the last three years, Toyota has strengthened its hybrid lineup by adding the fully remodeled Avalon HV in April 2018, the fully remodeled Corolla Sport in May 2018, the fully remodeled Crown HV and Century HV in June 2018, the new model ES HV in October 2018, the new model UX HV in November 2018, the fully remodeled RAV4 HV in December 2018, the fully remodeled Corolla SD and WG HV in February 2019, the fully remodeled Yaris HV, new Lexus models LM HV and the fully remodeled Highlander HV in February 2020, the fully remodeled RAV4 PHV and the fully remodeled Harrier HV in June 2020, the new model Corolla Cross HV in July 2020, the new model Yaris Cross HV in August 2020 and the fully remodeled Sienna HV in October 2020.

BEVs

Toyota started sales of the UX EV in China in April 2020 and then in Europe and Japan. In the future, Toyota plans to rollout 15 BEV models, including 7 new BEV models of the “TOYOTA bZ Series,” globally by 2025.

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FCEVs

Toyota began limited sales of a fuel cell vehicle in Japan and the United States in December 2002. Since then, Toyota has made advances by solving technological issues such as the above and worked towards the practical use of such solutions, culminating in the general sale of the world’s first mass produced fuel cell vehicle MIRAI in Japan beginning in December 2014, in the United States beginning in June 2015 and in Europe beginning in September 2015. Toyota also launched “SORA,” the first production model fuel cell bus to receive vehicle type certification in Japan, in March 2018. Toyota launched the fully remodeled MIRAI in Japan, the United States and Europe in February 2020.

Conventional Engine Vehicles

Subcompact and Compact

Toyota’s subcompact and compact cars include the four-door Corolla sedan, which is one of Toyota’s bestselling models. The Yaris is a compact car designed to perform better and offer greater comfort than other compact cars available in the market with attractive specifications such as low emissions. In Europe, Toyota introduced the fully remodeled Corolla in January 2019 and the fully remodeled Yaris in July 2020. In Japan, in addition to the Corolla Sport, which was introduced in May 2018, and a new Yaris model, which was introduced in February 2020, Toyota introduced the Aqua and Daihatsu introduced four OEM vehicles: the Passo, Roomy, Tank and Raize. In India, Asia, China and other markets, Toyota introduced the Etios and Vios, as well as the AGYA and Rush, which are designed and manufactured by Daihatsu, as well as GLANZA and Urban Cruiser, which are designed and manufactured by Suzuki Motor Corporation (“Suzuki”).

Mini-Vehicles

Mini-vehicles are manufactured and sold by Daihatsu. Daihatsu manufactures mini-vehicles, passenger vehicles, commercial vehicles and auto parts. Mini-vehicles are passenger vehicles, vans or trucks with engine displacements of 660 cubic centimeters or less. Daihatsu sold approximately 505 thousand mini-vehicles and 125 thousand automobiles on a consolidated basis during fiscal 2021. Daihatsu’s largest market is Japan, which accounted for approximately 90% of Daihatsu’s unit sales during fiscal 2021. From 2011, Toyota began to sell some mini-vehicles manufactured by Daihatsu under the Toyota brand.

Mid-Size

Toyota’s mid-size models include the Camry, which has been the bestselling passenger car in the United States for 23 of the past 24 calendar years (from 1997 to present) and also for the last 19 consecutive years. The Camry was fully remodeled in June 2017. Camry sales in the United States for 2020 were approximately 294 thousand units (including Camry hybrids).

Luxury and Large

In North America, Europe, Japan and other regions, Toyota’s luxury lineup consists primarily of vehicles sold under the Lexus brand name. Lexus passenger car models include the LS, the ES, the IS, the CT, the LC and the RC. Toyota also sells the LX, the GX, the RX, the NX and the UX as luxury sport-utility vehicles, and the LM as a luxury minivan. Toyota commenced sales of its luxury automobiles in Japan under the Lexus brand in August 2005. As of March 31, 2021, the Lexus brand lineup in Japan includes the LS, the ES, the IS, the CT, the LX, the RX, the NX, the UX, the LC and the RC. The Toyota brand’s full-size luxury car, the Avalon, was remodeled in April 2018, and the Crown was fully remodeled in June 2018. The Lexus brand’s passenger vehicle ES was fully remodeled in October 2018 and the new luxury minivan model LM was introduced in February 2020. Toyota also fully remodeled the Century limousine in Japan in June 2018.

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Sports and Specialty

In May 2019, Toyota introduced a new Supra for the first time in 17 years. Toyota also introduced a new GR Yaris in September 2020.

Recreational and Sport-Utility Vehicles and Pickup Trucks

Toyota sells a variety of sport-utility vehicles and pickup trucks. Toyota’s sport-utility vehicles available in North America include the Sequoia, the 4Runner, the RAV4, the Highlander and the Land Cruiser, and pickup trucks available are the Tacoma and Tundra. The Tacoma, the Tundra, the Highlander and the Sequoia are manufactured in the United States. Toyota also offers five types of sport-utility vehicles under the Lexus brand, including the LX, the GX, the RX, the NX and the UX. Toyota also manufactures the RX and RAV4 models in Canada. Toyota’s pickup truck, the Hilux, has been the bestselling model of all Toyota cars sold in Thailand. Toyota introduced the Lexus brand’s new model UX in November 2018, the fully remodeled RAV4 in January 2019, the fully remodeled Highlander in December 2019, the fully remodeled Harrier in June 2020, the new model Corolla Cross in July 2020 and the new model Yaris Cross in August 2020.

Minivans, Cabwagons, and Semi-Bonnet Wagon

Toyota offers several basic models for the global minivan market. Its largest minivans in Japan, the Alphard and the Vellfire, were remodeled in January 2015. In addition, the Noah/Voxy was remodeled in January 2014, and the new model Esquire was introduced in October 2014 in Japan. The Hiace was remodeled overseas in June 2019, and the Sienna was remodeled in North America in October 2020. Toyota’s other minivan models include the Sienta in Japan.

Trucks and Buses

Toyota’s product lineup includes trucks (including vans) up to a gross vehicle weight of five tons and micro-buses that are sold in Japan and in overseas markets. Trucks and buses are also manufactured and sold by Hino, a subsidiary of Toyota. Hino’s product lineup includes large trucks with a gross vehicle weight of over eleven tons, medium trucks with a gross vehicle weight of between five and eleven tons and small trucks with a gross vehicle weight of up to five tons. Hino’s bus lineup includes medium to large buses used primarily as tour buses and public buses, as well as small buses and micro-buses.

Product Development

New cars introduced outside of Japan during fiscal 2021 and thereafter include the Corolla Cross, Yaris Cross, GR Yaris and Urban Cruiser which is designed and manufactured by Suzuki. Remodeled cars outside of Japan during fiscal 2021 and thereafter include the MIRAI, Harrier and Sienna.

In addition, the IMV product lineup, based on the IMV project to optimize global manufacturing and supply systems, is a lineup of strategic multipurpose vehicles produced from a single platform to meet market demand. The IMV product lineup includes, as of March 31, 2021, the Hilux, Fortuner, and Innova, one or all of which are available in all regions.

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Markets, Sales and Competition

Toyota’s primary markets are Japan, North America, Europe and Asia. The following table sets forth Toyota’s consolidated vehicle unit sales by geographic market for the periods shown. The vehicle unit sales below reflect vehicle sales made by Toyota to unconsolidated entities (recognized as sales under Toyota’s revenue recognition policy), including sales to unconsolidated distributors and dealers. Vehicles sold by Daihatsu and Hino are included in the vehicle unit sales figures set forth below.

The following table sets forth Toyota’s vehicle unit sales and market share in Japan, North America, Europe and Asia on a retail basis for the periods shown. Each market’s total sales and Toyota’s sales represent new vehicle registrations in the relevant year (except for the Asia market where vehicle registration does not necessarily apply). All information on Japan excludes mini-vehicles. The sales information contained below excludes unit sales by Daihatsu and Hino, each a consolidated subsidiary of Toyota. Vehicle unit sales in Asia do not include sales in China.

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Japan

Japan is one of the leading countries with respect to technological advancements and improvements in the automotive industry and will continue to demonstrate such strength. Toyota strives to earn customer satisfaction by introducing products distinctive of Japan’s manufacturing ability such as value-added products including Lexus models, FCEVs, PHEVs and HEVs, vehicles with three-seat rows and mini-vehicles. Toyota’s consolidated vehicle sales in Japan in fiscal 2021 was 2,125 thousand units, a decrease of 115 thousand units in comparison with the previous year. Toyota endeavors to secure and maintain its large share of and position atop the Japanese market. Toyota held a domestic market share (excluding mini-vehicles) on a retail basis of 45.9% in fiscal 2019, 48.8% in fiscal 2020 and 51.9% in fiscal 2021.

Although Toyota’s principle is to conduct production in regions where it enjoys true competitiveness, it considers Japan to be the source of its good manufacturing practices. Toyota supports its operations worldwide through measures such as the development of new technologies and products, low-volume vehicles to complement local production, production of global vehicle models which straddle multiple regions and supporting overseas factories. Toyota is currently implementing the new platform and the new unit for the Toyota New Global Architecture (“TNGA”) globally, with Japan at the core. In Japan, Toyota is implementing flexible production based on market needs, in order to support its large share of domestic sales. Toyota also closed the Higashi Fuji plant of Toyota Motor East Japan, Inc. at the end of December 2020 and consolidated its production in northeastern Japan. Toyota started construction of the prototype city, or the Woven City, at the former Higashi Fuji plant site from February 23, 2021.

Since Toyota formed an alliance with SUBARU CORPORATION (“SUBARU”) in 2005, Toyota and SUBARU have utilized each other’s resources in development and production. In July 2008, SUBARU transferred 61 million SUBARU shares owned by SUBARU to Toyota with the aim to promote smooth collaboration. As a result of this transfer, Toyota owns 16.5% of SUBARU issued shares. In September 2019, in order to further strengthen the relationship, the two companies agreed that Toyota will increase its equity stake in Subaru up to 20% and at the same time Subaru will acquire shares in Toyota, promoting their collaboration to “make ever-better cars beyond what either company has been able to achieve thus far” and to “expand their collaboration to survive during this once-in-a-century period of profound transformation.”

In 2011, Toyota and the BMW Group agreed to conduct collaborative research in the field of next-generation lithium-ion battery technologies and for BMW to supply diesel engines to Toyota Motor Europe, Toyota’s European subsidiary. In 2013, as part of their strategic long-term cooperation in the field of sustainable mobility, Toyota and BMW Group entered into agreements for the joint development of a fuel cell system, joint development of architecture and components for sports vehicles and joint research and development of lightweight technologies. The two companies completed collaborative research on lithium-air batteries, a post-lithium-battery solution as planned by conducting the second phase of collaborative research into next-generation lithium-ion battery cells. The supply of diesel engines by BMW from 2014 through 2018 was completed as planned under the agreement. As a result of the joint development of sports vehicles, the production of new Supra commenced in March 2019.

Toyota and Mazda have been engaged in collaboration such as the licensing of Toyota’s hybrid technologies to Mazda and the production of compact cars for Toyota at Mazda’s plant in Mexico. In May 2015, towards the goal of making cars with more appeal, Toyota and Mazda entered into an agreement to build a long-term partnership that would create synergies for both companies through such means as leveraging the resources of both companies and complementing each other’s products and technologies. After subsequent discussions, Toyota signed an agreement to enter into a business and capital alliance with Mazda in August 2017. As part of this business and capital alliance, the companies agreed to mutually acquire shares of the other company with the aim of advancing and strengthening their long-term collaboration, as well as to: 1) establish a joint venture that produces vehicles in the United States; 2) jointly develop technologies for BEVs; 3) jointly develop connected-car technology; 4) collaborate on advanced safety technologies; and 5) expand replenishment of

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products. Pursuant to this agreement, in October 2017 Toyota and Mazda mutually acquired 50 billion yen worth of shares of each other. Toyota also established EV C.A. Spirit Corporation with Mazda and Denso Corporation (“Denso”) to jointly develop basic structural technologies for BEVs.    Furthermore, in March 2018, Toyota and Mazda established Mazda Toyota Manufacturing, U.S.A., Inc., a new joint venture company, to produce vehicles in the United States starting in 2021. EV C.A. Spirit Corporation concluded its operations in June 2020 and dissolved as scheduled.

In February 2017, Toyota and Suzuki, aiming to contribute jointly to resolution of social issues and achievement of the sound and sustainable development of an automobile-based society, entered into a memorandum of understanding on beginning concrete examination of a business partnership. In November 2017, the two companies agreed to move forward in considering a cooperative structure for introducing [BEVs] in India, and in March 2018, concluded a basic agreement toward the mutual supply of products. In May 2018, Toyota and Suzuki agreed that Toyota will provide Suzuki development support for a compact, ultrahigh-efficiency powertrain, to have Toyota Kirloskar Motor Private Ltd. (“TKM”) produce models developed by Suzuki and to collaborate with respect to African markets. In addition, in March 2019, Toyota and Suzuki began considering the concrete details of collaboration in new areas, such as collaboration in the area of production and promotion of the widespread use of electrified vehicles, by bringing together Toyota’s strength in technologies for electrification and Suzuki’s strength in technologies for compact vehicles. In August 2019, the two companies agreed that Toyota will acquire 4.94% of Suzuki’s shares and that Suzuki will also acquire Toyota shares, further strengthening their relationship and promoting collaboration. As a first step of their collaboration in Africa, starting from September 2020, small passenger hatchback cars, which are designed and manufactured by Maruti Suzuki, are marketed and sold at Toyota’s distributors in South Africa and other African countries. As a second step, a compact SUV was launched in March 2021 and further lineup expansions are planned.

In December 2017, Toyota and Panasonic entered into an agreement to study the feasibility of a joint automotive prismatic battery business. Having repeatedly held discussions since then on the concrete details of their collaboration to achieve high-capacity and high-output automotive prismatic batteries that lead the industry in terms of both performance and cost, as well as to contribute to the popularization of Toyota’s and other automakers’ electrified vehicles, in January 2019, Toyota and Panasonic agreed to establish a joint venture related to the automotive prismatic battery business. Toyota and Panasonic established Prime Planet Energy & Solutions, Inc. in April 2020.

In June 2018, Toyota and Denso agreed to begin to consider consolidating the core electronic component operations of both companies within Denso, and entered into a formal agreement concerning this in April 2019. On April 1, 2020, the production and development functions of electronic components at Toyota’s Hirose Plant was consolidated within Denso. In doing so, the companies established a speedy and competitive development and production structure.

In April 2019, as part of the initiative to further promote the widespread use of BEVs, Toyota announced that it will grant royalty-free licenses on the patents it holds (including some pending applications) for vehicle electrification-related technologies, such as electric motors, power control units (PCUs), and system controls. Toyota also announced that it will provide technical support to other manufacturers developing and manufacturing electrified vehicles when they utilize Toyota’s power train systems.

Toyota, Isuzu Motors Limited (“Isuzu”) and Hino agreed on a new partnership regarding commercial vehicles in February 2021. Toyota intends to combine Toyota’s connected, autonomous / automated, shared, and electric (“CASE”) technologies with the commercial vehicle foundations cultivated by Isuzu and Hino. Through this collaboration, Toyota aims to accelerate societal implementation and dissemination of CASE technologies and services and to help address various difficulties facing the transportation industry, as well as help achieve a carbon neutral society. To promote the partnership, Isuzu, Hino, and Toyota are establishing Commercial Japan Partnership Technologies Corporation, a company for planning CASE technologies and services for commercial vehicles. Furthermore, to smoothly construct and advance the collaboration, Isuzu and Toyota agreed on a capital partnership.

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In Japan, there are five major domestic manufacturers, five specialized domestic manufacturers and a growing volume of imports from major United States and European manufacturers. The prolonged economic slump in the Japanese economy and the recent increases in environmental awareness have also shifted consumer preference towards more affordable automobiles, such as compact and subcompact vehicles, and towards utility vehicles, such as mini-vans. For more than 40 years, Toyota has maintained its position as the largest automobile manufacturer in Japan. Every year since fiscal 1999, Toyota, excluding Daihatsu and Hino, has achieved a market share (excluding mini-vehicles) of over 40%, reflecting in part the success of the introduction of new models for subcompact and compact cars, mini-vans and sedans. In August 2005, Toyota launched the Lexus brand in Japan and achieved a record top market share of 25.6% in the luxury market in 2011. Toyota aims to further distinguish the Lexus brand by continuing to attract new and affluent customers including customers that typically had purchased imported vehicles.

North America

The North American region is one of Toyota’s most significant markets. Toyota has reorganized its production structure and made improvements to its product lineup. In addition, Toyota is actively working to promote increased local operations independence in North America, in accordance with the Toyota Global Vision, announced in 2011.

In the North American region, of which the United States is the main market, Toyota has a wide product lineup (excluding large trucks and buses), and sold 2,313 thousand vehicles on a consolidated basis in fiscal 2021. This represents approximately 30% of Toyota’s total unit sales on a consolidated basis. The United States, in particular, is the largest market in the North American region, which accounts for 88% of the retail sales of Toyota in such region. Sales figures for fiscal 2021 were 85.2% of those in the prior fiscal year.

Toyota commenced sales of the first-generation Prius hybrid model in North America in 2000. The Prius became Toyota’s bestselling model behind the Corolla and Camry, having gained particular support among customers concerned with the environment. Toyota continued further expansion of its environmentally friendly vehicles with the introduction of models such as the Camry HV in 2017, the fully remodeled Avalon HV and RAV4 HV in 2018, the Corolla HV and RAV4 Prime in 2019, and Highlander HV, Venza HV and Sienna HV, as well as the second generation MIRAI in 2020.

Since the introduction of the LS and ES models under the premium brand model, Lexus, in the United States in 1989, Toyota has expanded its Lexus sales with models including the GS, IS and RX. Toyota sold 352 thousand units in 2016, 305 thousand units in 2017, 298 thousand units in 2018, when the new model UX and the fully remodeled ES were introduced, 298 thousand units in 2019, and 275 thousand units in 2020.

Toyota is continuing to revise its vehicle models and North American production capacities in response to changes in market conditions. Toyota launched the all-new Camry with the first TNGA platform in North America at the Kentucky plant in 2017 and redesigned Avalon into an all-new model in 2018. Toyota increased the production capacity of the Tacoma from 100,000 to 160,000 in Baja California, Mexico in 2018, and of the Highlander at its Indiana plant in 2019. Toyota’s Mississippi plant started production of the remodeled new Corolla with the TNGA platform in 2019, and its new Mexico plant (Guanajuato) commenced operations at the end of 2019 and began producing the Tacoma. The production of Toyota-brand compact cars for sale in North America that began at Mazda’s plant in Mexico through the business alliance with Mazda in June 2015 ended in November 2020.

In order to further strengthen competitiveness in North America, Toyota will continue the realignment of North American manufacturing operations going forward. As part of this effort, in addition to the production of the NEW SUV at a new plant in Alabama, Toyota announced in April 2021 that two new vehicle models will be produced at its Indiana plant. Toyota will focus its production of mid-sized vehicles in the plant in Canada, along with the plants in Indiana and Kentucky, by commencing production of the mid-sized SUV RAV4 instead of the

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Corolla in Canada starting in 2019. Further, Toyota plans to begin production of the Lexus NX compact SUV at the Canada plant from 2022. Toyota also introduced the RAV4 at the Kentucky plant in January 2020 in order to catch up with the expanding SUV market. For powertrains, Toyota plans to increase the production capacity by 120,000 units per year at its West Virginia plant starting in 2021 and further increase the production capacity by 70,000 units per year in 2022. Toyota also plans to raise the production capacity of Alabama plant four-cylinder engines and V6 engines by 230,000 units by 2021.

As for Toyota’s vehicle development in North America, the Toyota Technical Center spearheads the design, planning, and evaluation of vehicles and parts as to their ability to meet customer needs. Toyota will continue to promote self-reliance towards producing even better cars in the future.

In July 2017, Toyota launched its new North American headquarters in Plano, Texas and unified its North American manufacturing, sales and marketing, financial services and other functions. Toyota plans to promote collaboration and efficiencies across functions, position itself to deliver “ever-better cars” to customers and work towards realizing sustainable growth in the North America market.

Europe

Toyota’s principal European markets are Germany, France, the United Kingdom, Italy, Spain and Russia. Toyota’s principal competitors in Europe are Volkswagen, Renault, Ford, Opel and Peugeot, as well as Korean manufacturers Hyundai and Kia.

While competition in Europe continues to intensify, Toyota has been expanding its hybrid line-up to further strengthen its sales operations. In parallel, Toyota has entered into supply agreements with Stellantis (formerly Peugeot S.A. (“PSA”)) for light commercial vehicles. To strengthen its business setup so that it is less likely to be affected by exchange rates, Toyota launched RAV4 for Russia at OOO “TOYOTA MOTOR” (“TMR”) and C-HR at Toyota Motor Manufacturing Turkey Inc. (“TMMT”) in 2016 in the form of local production. In addition, Toyota is actively promoting production and sales measures that meet local demand by strengthening its value chain including used car dealerships, after-sales services and finance and insurance services. In January 2021, Toyota took financial ownership of the Toyota Peugeot Citroën Automobile (TPCA) plant in Kolin (Czech Republic), which was a manufacturing joint venture with PSA and has been producing the compact A-segment models since 2005. Toyota had Toyota Motor Europe S.A./N.V. (“TME”) acquire all of the TPCA shares held by PSA, making TPCA a wholly-owned subsidiary of TME from December 2020, and renamed it Toyota Motor Manufacturing Czech Republic (“TMMCZ”). In the second half of 2021, Toyota Motor Manufacturing France S.A.S. (“TMMF”) will start producing Yaris Cross, a new compact SUV revealed in 2020. TMMCZ will also start manufacturing hybrids after expansion and modernization works, which will enable us to introduce TNGA and bridge part of TMMF’s Yaris volume. Thus, the TNGA production system will be installed across all European factories.

In 2020, the European automotive market suffered a substantial impact due to COVID-19 pandemic containment measures, including full-scale lockdowns and other restrictions. After the end of the containment measures, the market recovered back to levels seen in the months prior to COVID-19, but the loss generated during the months of lockdowns remained a major factor in the full-year picture.

Despite the volatile business environment, in fiscal 2021, Toyota achieved an all-time sales record in terms of European market share for the Toyota and Lexus brands combined and passenger car registrations for the Toyota brand (third position). This was thanks to Toyota’s solid backorder deliveries, success in capturing new customers and strong line-up, especially Corolla TS/HB HV, C-HR HV, Yaris HV and RAV4. Toyota’s consolidated vehicle sales in Europe in fiscal 2021 was 959 thousand units, a decrease of 6.8% from fiscal 2020.

In terms of model change, Toyota Motor Manufacturing (UK) Ltd. (“TMUK”) and TMMT implemented a model change for the Corolla in 2018 and 2019, respectively. Also, in Russia, Toyota redesigned the Camry into

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an all-new model on the TNGA platform in April 2018. In February 2020, Toyota launched a new compact van range, PROACE CITY, supplied by Stellantis, as part of its plan to strengthen Toyota’s line-up in the growing European light commercial vehicle market. In October of the same year, in order to build on the Stellantis-Toyota partnership and further expand its electrified line-up, Toyota launched PROACE and PROACE Verso Electric vans, its first zero-emission battery electric vehicles in Europe. Toyota’s European hybrid line-up encompasses a wide variety of vehicles, from compact cars to large passenger cars and SUVs since Highlander hybrid complemented a large SUV hybrid line-up in January 2021 in order to meet the needs of customers who tend to travel longer distances with a greater percentage of motorway mileage. Additionally, in order to cater to customers seeking the ultimate fun-to-drive vehicle, Toyota launched the GR Supra, the first global model of Toyota motor sports brand Toyota GAZOO Racing, produced at BMW’s Magna Steyr plant in Austria. The first vehicles were delivered to customers in July 2019. This was followed by a highly successful launch of GR Yaris in November 2020, a true road-going sports car developed directly from Toyota’s championship-winning World Rally experience that is suitable for competition driving, yet affordable for many car enthusiasts.

In terms of auto parts, in October 2016, Toyota decided to produce hybrid transaxles and gasoline engines in Poland. Toyota started production of hybrid transaxles in 2018 at Toyota Motor Manufacturing Poland (“TMMP”), a production plant for transmissions and engines, and added two gasoline engines — a 1.5L in 2017 and a 2.0L in 2019 — at Toyota Motor Industries, Poland (“TMIP”), a production plant for diesel engines. In concert with the enhancement of the gasoline engine business, the two companies were integrated in April 2017. To further localize hybrid vehicle production in Europe, in June 2020, TMMP started production of a new 1.5L petrol “Dynamic Force Engine” belonging to the TNGA powertrain family, which is installed in the new generation Yaris made at TMMF, and which will also be fit into Yaris vehicles made at TMMCZ. In April 2021, TMMP also started production of a new generation electric hybrid transmission that works in concert with the 1.5L petrol “Dynamic Force Engine,” as well as production of the MG1 electric motor, which forms an integral part of the electric hybrid transmission.

As part of Toyota’s global vision to evolve into a mobility company, Toyota launched a new mobility brand, KINTO, in Europe in January 2020. Using a distinct and dedicated brand, Toyota aims to appeal to a new category of MaaS customers. KINTO-branded services range from full-service leasing to car sharing, carpooling and subscription. In April 2021, Toyota Fleet Mobility GmbH (TFM), headquartered in Cologne, Germany and owned 51% by Toyota Financial Services Corporation (TFSC), Japan and 49% by Toyota Motor Europe, was renamed KINTO Europe GmbH in order to regroup KINTO-branded mobility services under one roof, bring increased customer value and further unlock market potential. In parallel, local KINTO organizations began operations in main five markets — Spain, France, Italy, UK and Germany — to ensure market by market deployment of KINTO-branded services based on viability and sustainability of the business case.

For promotion of the clean hydrogen industry in Europe, Toyota is supplying and integrating its fuel cell system in various applications such as CaetanoBus, Energy Observer boat, Energy Observer Developments’ maritime range extender (REXH2) and Hydrogen Power Generator (GEH2), and maritime fuel-cell systems developed by Corvus Energy. To support this rapidly-expanding interest in hydrogen technology beyond transportation, Toyota Motor Europe established a dedicated Fuel Cell Business Group in Brussels in July 2020.

Asia

Toyota’s consolidated vehicle sales in Asia (including China) in fiscal 2021 was 1,222 thousand units, a decrease of 23.6% from fiscal 2020.

In light of the importance of the Asian market that is further expected to grow in the long term, Toyota aims to build an operational framework that is efficient and self-reliant, as well as a predominant position in the automotive market in Asia. Toyota has responded to increasing competition in Asia by making strategic investments in the market and developing relationships with local suppliers. Toyota believes that its existing

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local presence in the market provides it with an advantage over new entrants to the market and expects to be able to promptly respond to demand for vehicles in the region.

In this region, Toyota has been further strengthening its business foundations by improving its product line-up, expanding local procurement and increasing production capacities.

Toyota’s principal Asian markets are Thailand, India, Indonesia and Taiwan.

In Thailand, Toyota has three plants capable of producing approximately 800 thousand units per year, not only to meet domestic demands but to serve as a production base for regions inside and outside the ASEAN region, and produces and exports the Hilux, the Hiace, the Corolla, the Camry and the Vios. Toyota implemented a model change for the Hiace and Corolla in 2019 and began production of the Corolla Cross in 2020 to strengthen its product lineup.

In India, Toyota constructed a second plant with an annual production capacity of 70 thousand units in 2011 and has increased the production capacity as necessary up to 210 thousand units. In 2018, Toyota newly launched the Yaris compact model in such second plant. Moreover, in line with the global redesigning of the Camry, Toyota implemented a model change in India and began producing the TNGA model as well.

In Indonesia, Toyota introduced the Etios and commenced operation of a second plant in Karawang in 2013 in order to meet the diverse customer needs and the expanding market. Currently, Toyota is producing the Vios, the Yaris and the Sienta, and the initial production capacity of 70 thousand units per year has become 130 thousand units per year. Similar to the plant in Thailand, PT. Toyota Motor Manufacturing Indonesia (“TMMIN”) is positioned as a production base for regions inside and outside of the ASEAN region, including the production of Innova and the Fortuner at the first plant. Toyota also constructed a passenger vehicle engine plant that commenced production in February 2016.

In 2016, Toyota began production and sales of the Sienta in Taiwan in response to diversifying demands.In March 2019, Toyota implemented a model change for Corolla in Taiwan. In October 2020, Toyota launched and began production of the Corolla Cross.

China

Toyota has been conducting operations in China through joint ventures, and its success in producing products that meet local demands and in establishing its sales and service network has significantly contributed to Toyota’s profits. Based on the firm business foundation that it has established, Toyota is conducting its operations with the aim of promoting further growth and increasing profitability through further development of its sales and service network and expansion of its product lineup.

In China, Toyota has been conducting joint ventures with two major partners, namely, China FAW Group Corporation and Guangzhou Automobile Group Co., Ltd. First, with respect to the joint venture with China FAW Group Corporation, from when production and sales of the Vios started in 2002, production and sales of the Land Cruiser Prado, the Corolla, the Crown, the Coaster and the RAV4 has expanded to include such models. The joint venture has developed production bases in three regions, namely, Tianjin, Changchun and Sichuan, and in Tianjin, the joint venture completed the construction of a new production line to replace an aging existing line in the Teda area in June 2018, and introduced the new-model SUV IZOA, which is a TNGA platform vehicle. In Changchun, where a new plant was launched in 2012, the initial production capacity of 100 thousand units per year has now become 130 thousand units per year. The joint venture also increased annual production capacity of the plant in Sichuan from 30 thousand units to 50 thousand units in the spring of 2015 to increase production of the Prado, and is steadily increasing its production capacity of these three plants, which on an aggregate basis is currently approximately 690 thousand units per year. In addition, the joint venture sought to improve production efficiency by closing small, aging production lines at the Changchun East Plant of Sichuan FAW Toyota Motor Co., Ltd. in December 2016 and the Xiqing Plant of Tianjin FAW Toyota Motor Co., Ltd. in February 2017.

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GAC Toyota Motor Co., Ltd. (“GAC Toyota”), a joint venture between Toyota and Guangzhou Automobile Group Co., Ltd., expanded the production and sales of the Camry, the Yaris, the Highlander, the Levin, etc. With regard to production capacity, GAC Toyota has an annual production capacity of approximately 560 thousand units in total due to starting a third plant in early 2018 in addition to the existing first and second plant. GAC Toyota redesigned the Camry in 2017 and the C-HR in 2018 into an all-new model with the TNGA platform, as well as launched new models.

In terms of auto parts, in 2014, Toyota opened a plant in Changshu in Jiangsu, China for the production of the Continuously Variable Transmission (“CVT”) as the first CVT plant outside of Japan and in September 2015, Toyota also began production of HEV Transaxles at the CVT plant. Toyota also launched a plant to produce hybrid vehicle batteries in October 2015.

Total vehicle sales in the Chinese market decreased 2% from 25.78 million in 2019 to 25.21 million in 2020. In this market, Toyota’s sales in 2020 were 1.79 million vehicles, up 11% from the previous year. In the domestically produced passenger vehicle market in mainland China (19.44 million units), Toyota had a market share of 9.2%. In 2020, sales of SUVs expanded as a result of customers’ value diversification. As for Toyota’s distribution network, Toyota has been expanding the distribution network for locally produced vehicles in cooperation with Chinese joint venture partners under Tianjin FAW Toyota Motor Co., Ltd. and Guanqi Toyota Motor Co., Ltd., and for imported vehicles, Toyota has also been expanding primarily the Lexus brand sales network. Toyota plans to further increase sales by expanding the number of dealers and the product lineup for both locally produced and imported vehicles. In addition, as the market in China develops and becomes more sophisticated, Toyota plans to promote the so-called “Value Chain” businesses, such as used cars, services, financing and insurance so as to contribute to the development of a mobility society.

South and Central America, Oceania, Africa and the Middle East

Toyota’s consolidated vehicle sales in South and Central America, Oceania, Africa and the Middle East (collectively, the “Four Regions”) in fiscal 2021 were 1,027 thousand units, a decrease of 25.2% from fiscal 2020.

In these regions, which are expected to become increasingly important to Toyota’s business strategy, Toyota aims to develop new products which meet the specific demands of each region, increase production and further promote sales.

Toyota’s principal markets in the Four Regions are Brazil and Argentina in South and Central America, Australia in Oceania, South Africa in Africa and Saudi Arabia in the Middle East.

The core models in this region are global models such as the Corolla, IMV (the Hilux) and Camry. In order to increase production of IMVs, Toyota increased annual production capacity of the plant in Argentina to 140 thousand units per year at the end of 2015. In order to expand business in Brazil, Toyota constructed a new factory in Sorocaba with an annual production capacity of 70 thousand units, and in 2012, began production and sales of compact vehicles. Starting from the beginning of 2016, Toyota increased production capacity to 110 thousand units per year and started production of the Yaris from June 2018 and the Corolla Cross from March 2021.

Moreover, in terms of auto parts, Toyota commenced first line production at a plant in Brazil for passenger vehicle engines in February 2016, and opened the second line in July 2019.

In Africa, Toyota plans to start production of the Corolla Cross, including an HEV for the first time in South Africa, by the end of 2021. Furthermore, in October 2019, Toyota added an IMV (the Hilux) to its lineup of consigned knockdown production in Kenya. Toyota also plans to start knockdown production of an IMV (the Hilux) in mid-2021 in Ghana.

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Production

Toyota and its affiliated companies produce automobiles and related parts and components through more than 50 overseas manufacturing companies in 27 countries and regions besides Japan. Toyota’s major manufacturing facilities include plants in Japan, the United States, Canada, the United Kingdom, France, Turkey, Czech Republic, Russia, Poland, Thailand, China, Taiwan, India, Indonesia, South Africa, Argentina and Brazil. Daihatsu brand vehicles are produced at four factories in Japan and two manufacturing companies in two other countries of Indonesia and Malaysia. Hino brand vehicles are produced at four factories in Japan and eleven manufacturing companies in eleven countries, including Indonesia and Thailand, and Toyota is planning to increase the bases in the United States and Russia. For a listing of Toyota’s principal production facilities, see “Information on the Company — Property, Plants and Equipment.”

In promoting a sustainable growth strategy, establishing a system capable of providing optimal supply of products in the global market is integral to Toyota’s strategy.

In line with its basic policy of manufacturing in countries or regions where there is demand and where Toyota is truly competitive, Toyota will make efficient use of and maximize capacity utilization at its existing plants to respond to the expanding market and will continue to focus on making efficient capital investments as necessary. Furthermore, Toyota will continue to place top priority on safety and quality in strengthening true competitiveness with the aim of achieving sustainable growth.

In fiscal 2020, Toyota produced on a consolidated basis 4,413 thousand vehicles in Japan and 4,406 thousand vehicles overseas, and 3,948 thousand vehicles in Japan and 3,605 thousand vehicles overseas in fiscal 2021.

The following table shows Toyota’s worldwide vehicle unit production by geographic market for the periods shown. These production figures do not include vehicles produced by Toyota’s unconsolidated affiliated companies. The sales unit information elsewhere in this annual report includes sales of vehicles produced by these affiliated companies. Vehicles produced by Daihatsu and Hino are included in the vehicle production figures set forth below.

Toyota closely monitors its actual units of sale, market share and units of production data and uses this information to allocate resources to existing manufacturing facilities and to plan for future expansions.

See “— Capital Expenditures and Divestitures” for a description of Toyota’s recent investments in completed plant constructions and for a description of Toyota’s current investments in ongoing plant constructions.

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The Toyota Production System

Toyota pioneered the internationally recognized production system known as the “Toyota Production System” (“TPS”). The TPS is based on Toyota’s own concepts of efficient production of only necessary and quality products and efficient cost reduction, and has the following two principal elements:

Just-in-Time is an approach in which necessary parts and components are manufactured and delivered in just the right quantity in a timely manner just as they are needed. This allows Toyota to maintain low levels of inventory while maintaining operating efficiency.

Jidoka is a production concept which involves immediate stop of work when problems arise in the production line in order to stop the production of defective items from being passed on to subsequent stages of the process, and therefore making quality assurance an inherent part of the production process. To achieve this, Toyota’s equipment is designed to detect and highlight abnormalities and to stop whenever abnormalities occur. Toyota also authorizes its machine operators and other members of its production team to stop production whenever they note anything suspicious. This helps Toyota to build quality into the production process by avoiding defects and preventing the waste that would result from producing a series of defective items.

Toyota believes that the TPS allows it to achieve mass-production efficiencies even in high-mix, low-volume production. This belief gives Toyota the flexibility to respond to changing consumer demand without significantly increasing production costs. While the TPS remains the basis of Toyota’s automobile production, the system has been expanded for use in Toyota’s parts production, logistics and customer service activities as well.

Through the TPS, issues are identified and analyzed at the actual site, the entire production process is made visible and production efficiency as well as product quality are improved through the application of measures to address the sources of problems. As one method to implement these measures, Toyota utilizes sophisticated information technologies to improve each step of its vehicle development process, from product planning to commencement of mass-production. These technologies are intended to enhance flexibility, simplification, quality, cost competitiveness and speed. Specifically, detailed virtual assembly and other simulations of manufacturing processes are conducted on computers for a new vehicle or new production equipment/systems before a prototype is made. An actual prototype is made only after defects and related issues have been identified and resolved by computer simulation, thereby minimizing the time required for rebuilding prototypes and significantly shortening the time required before starting mass production. Moreover, this system is used to prepare virtual factories and other visual aids in order to facilitate training and communication at overseas plants and enable the efficient transfer of necessary technology and skills.

In January 2018, Toyota established the TPS Group, and in order to stay true to itself, Toyota has gone back to its roots, positioning TPS as the bedrock of its management, and is moving forward with initiatives to ensure that TPS is passed on to the future as part of Toyota’s DNA. Specifically, Toyota will have the concepts of “Just-in-Time” and “jidoka,” which are the two main pillars of the TPS, spread within the entire company and have all divisions, including technical and administrative divisions, work to reduce lead time and ensure that abnormalities are made visible, through which Toyota will achieve results by both cost reduction through improved productivity ,as well as improved work quality.

Toyota is currently working towards producing even better cars across the company. With the aim of realizing “cars that offer a rewarding experience for customers” through “truly competitive manufacturing” in terms of production technology and manufacturing, Toyota is developing innovative production systems, equipment and processing technology and introducing them to its mass-production line in due course.

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Distribution

Toyota’s automotive sales distribution network is the largest in Japan. As of March 31, 2021, this network consisted of 268 dealers employing approximately 110 thousand personnel and operating approximately 4.6 thousand sales and service outlets. TOYOTA Mobility Tokyo Inc. is the only dealer owned by Toyota and the remainder is independent.

Toyota believes that this extensive sales network of independent local interests has been an important factor in its success in the Japanese market. A large number of the cars sold in Japan are purchased from salespersons who visit customers in their homes or offices. In recent years, however, the traditional method of sales through home visits is being replaced by showroom sales, and the percentage of automobile purchases through showrooms has been gradually increasing. Toyota expects this trend to continue even after the COVID-19 related crisis, and accordingly, is working to improve its sales activities such as customer reception and meticulous service at showrooms, as well as online sales, to increase customer satisfaction.

Sales of Toyota vehicles in Japan had been conducted through four sales channels until April 2020, but from May 2020 shifted to a framework where all of its Japanese-market vehicle models are made available through all sales outlets in Japan. In addition, Toyota introduced the Lexus brand to the Japanese market in August 2005, and currently distributes the Lexus brand vehicles through a network of 175 new-vehicle sales outlets dedicated to the Lexus brand in order to enhance its competitiveness in the domestic luxury automotive market. The following table provides information on the dealer network as of March 31, 2021.

Outside Japan, Toyota vehicles are sold through approximately 168 distributors in approximately 203 countries and regions. Through these distributors, Toyota maintains networks of dealers. The chart below shows the number of Toyota distributors as of March 31, 2021 by country and region:

Improving Efficiency

Toyota is working on the following to create a corporate structure allowing for efficient development, production and sales that can respond flexibly to changes in the external environment:

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Toyota also plans to improve profitability and enhance operating efficiency by continuing to pursue aggressive cost reduction programs, including:

Toyota is further improving production efficiency by installing more versatile equipment and systems, modifying vehicle body designs to allow for a greater variety of models on each production line and sharing more parts among vehicles, not simply among different models but also among different platforms.

In April 2012, Toyota announced a new development framework, the TNGA, which reconciles sweeping advances in product appeal with cost reductions. The new framework sets forth an architecture that incorporates not only the three fundamental vehicle functions of moving, turning and stopping, but also ergonomics such as driving position as well as freedom of design. Toyota plans to efficiently develop cars with high basic-performance attributes by developing parts and modules based on this architecture. The TNGA provides for handling multiple models simultaneously in grouped development projects that will increase the sharing of parts and core vehicle components. This sharing, carried out in cooperation with suppliers, will result in lowered costs, thereby allowing developmental manpower and funds to be reinvested in R&D to meet consumer preferences and R&D to meet regional needs, resulting in further product improvement.

By April 2013, Toyota established systems to rapidly promote the TNGA and carried out product development under this new way of doing business. As a result, Toyota realized high basic performance and marketability in the Prius that was introduced in Japan in December 2015. Toyota subsequently applied the TNGA initiatives to the Camry, Lexus LC and LS in 2017 and the Crown and Corolla Sport in 2018. Toyota has rolled out, and plans to continue to roll out, the results of such development to other vehicles as well.

Realizing a Smart Mobility Society that expands through connected car technologies

In the midst of rapidly changing societies, including the falling birth rate and aging populations in developed nations, an increasingly diverse range of energy sources and the evolution of IoT, among others, the automotive industry is facing a time of profound transformation that could happen only once in a hundred years. As a company responsible for the freedom of mobility, which is one aspect of social infrastructure, Toyota is firmly determined to contribute to solving social issues by changing the very ways in which people, things, and information flow through the world. Based on this commitment, Toyota is moving forward with initiatives striving to realize a smart mobility society, in which people can “enjoy freedom of movement and feel at ease and excited,” by connecting vehicles, people and communities with its connected car technologies.

Our Connected Strategy for Realizing Connected Platforms

Connecting cars is not only providing new value and services to customers, but creating new modes of use and new roles in society for cars. To stay at the forefront of this evolution, Toyota established an in-house

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Connected Company in April 2016 and announced its Connected Strategy in November of the same year. This strategy comprises three pillars that we initiated almost simultaneously.

The key to connecting all cars is on-board data communication modules (“DCMs”), which connect cars to data centers. In 2002, Toyota commercialized its DCMs and launched the G-BOOK service for Toyota vehicles (this service was replaced by T-Connect in 2014). In 2005, DCMs became a standard feature in Lexus cars, and Toyota launched the G-Link service in Japan before expanding it to North America and China. As the first step towards connecting all vehicles, in June 2018, Toyota also launched sales in Japan of the new Crown and Corolla Sport with DCMs as standard features for all vehicles. This marked the start of Toyota’s full-scale roll out of connected cars. Toyota completed installation of DCMs on virtually all passenger vehicles it sells in Japan and the United States in 2020, and will steadily equip more vehicles with DCMs in Japan and other major markets around the world going forward.

As the number of connected cars on the road increases, so does the big data they generate and Toyota is using this data to contribute to the good of customers and society while revolutionizing its own businesses. Aggregate route history maps were made publicly available after the Great East Japan Earthquake, and such data has subsequently been used in evacuation, response, and recovery operations following several natural disasters. Furthermore, by analyzing the diverse information collected from cars on the road using big data approaches, Toyota will be able to utilize that information to create and enhance services that provide safety and peace of mind. Making DCMs standard features also makes Toyota’s online services more convenient and easier to use. The voice recognition-enabled AI virtual agent understands passengers’ natural speech and performs tasks such as setting the destination for the navigation system. Toyota also has operators standing by 24 hours a day, 365 days a year, to provide a more in-depth response to customer requests. By offering both virtual (AI) and real-world (operators) services, Toyota seeks to provide what it calls “Human Connected Services.”

Toyota will accelerate cross-industry collaboration through the Mobility Service Platform (“MSPF”). Using the MSPF, Toyota is taking an open approach and working together with all kinds of service providers to contribute to the creation of new mobility services. Toyota has already begun a range of collaborative initiatives. In May 2016, Toyota and Uber Technologies, Inc. (“Uber”) began to consider a partnership in ride-sharing. In 2017, Toyota conducted a pilot program for its Smart Key Box with the United States car-sharing company Getaround, Inc.; began a partnership with Grab Holdings Inc. (“Grab”), the leading ride-hailing service company in Southeast Asia; and began verification testing of connected taxis with the Tokyo Taxi-Hire Association. Going forward, Toyota will work to deepen these and other initiatives in order to create new mobility services and accelerate their commercialization.

The Connected Strategy has three facets: defense, Kaizen (improvement) and offense. Defense means to establish long-term relationships of trust with customers, and to secure and expand the existing value chains; Kaizen (improvement) means to rapidly improve productivity, quality, and lead time of work by changing existing work habits; and Offense means to create new value for our cars and to create our new mobility business.

As practical measures for realizing a Smart Mobility Society based on the Connected Platforms, Toyota is promoting: 1. “Connected with vehicles and roads (SAFETY) — Cooperative ITS, driving assistance functions and automated driving”; 2. “Connected with people (COMFORT) — Connected Service”; and 3. “Connected with society and the community (ECO & CONVENIENCE) — Maas (Mobility as a Service).”

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Connected with vehicles and roads (SAFETY) — Cooperative ITS

Enhancing transport systems requires taking a general approach that addresses various factors that are pertinent not only to vehicles but also roads, people and public transport systems in order to ensure smooth and efficient movement of people and vehicles and to build a safe transportation environment. This covers a wide scope, including VICS and ETC (Electronic Toll Collection System), which are already standard in Japan. “Cooperative ITS,” which combines cutting edge IT and vehicle technology, is in development and has begun to be partially implemented. With the aim of achieving a safe and comfortable transportation society, Toyota is promoting initiatives to populalize and increase the sophistication of “Cooperative ITS,” which provides information that cannot be captured by car sensors to drivers through the vehicle-to-infrastructure (V2I) and vehicle-to-vehicle (V2V) bidirectional communication systems, therby reducing accidents.

Toyota is promoting the development of systems with further enhanced functions, and will aim at the realization of automated driving in which all drivers can move safely, smoothly and freely by harmonizing ITS technology and vehicle control technology.

Connected with vehicles and roads (SAFETY) — driving assistance functions and automated driving

Toyota’s driving assistance functions offer functions that assist drivers with an aim to lessen the burden of driving, enhance safety and provide to everyone the pleasure of driving. Toyota has commercialized enhancements to various functions that assist the driver in sensing external information, avoiding danger and making appropriate maneuvers.

In 2015, Toyota commercialized the Toyota Safety Sense, a package that includes Automatic Emergency Braking (AEB) and and driving support functions. In 2018, Toyota commercialized the new-generation Toyota Safety Sense (Toyota Safety Sense 2.0 in the United States), which has enhanced AEB and driving support functions. In 2020, Toyota commercialized Toyota Safety Sense 2.5 and Toyota Safety Sense 2.5+ with additional functions, such as to address accidents at intersections. The most recent Toyota Safety Sense 2.5+ has the following functions:

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Toyota has completed deployment of Toyota Safety Sense on nearly all models sold in Japan, the United States and Europe at an affordable price aimed at widespread adaption. In the United States, Toyota proceeded to make this technology a standard feature on almost all of its vehicles and achieved the voluntary commitment goal to equip AEB (Automatic Emergency Braking) on 95% of vehicles for sale by 2022, as agreed under the industry’s AEB MOU, two years ahead of schedule, and equipped AEB on 97% of vehicles for sale in 2020. The accumulated global shipments of vehicles with Toyota Safety Sense installed exceeded 22 million vehicles (of which approximately 9 million vehicles were shipped to the United States) as of the end of December 2020.

In addition to the above, Toyota is globally promoting the development of “Parking Support Brake,” which detects obstacles in the front or rear of the vehicle using ultrasonic sensors mounted inside in the front and rear of the vehicle and supports avoiding collisions at low speeds and accidents caused by misapplication of the accelerator. Furthermore, to address abnormal operation of the accelerator, even when no obstacles are present, Toyota commercialized the Acceleration Suppression Function that was developed using big data. Toyota has been widely sharing the concept and algorythm of this function within the industry from the development stage in keeping with the philosophy that collaboration is essential for safety. The Acceleration Suppression Function is installed only in vehicles in Japan at present, but Toyota will examine the possibility of deployment in vehicles in other regions in the future after conducting analyses of accident circumstances and big data, as well as the study of customer needs.

Connected with people (COMFORT) — Connected Service

The driving experience can be enriched and its convenience can be improved through information communication technologies that add a new “connecting” function to the basic vehicle functions of “running, turning and stopping.” Examples of the connecting function include the following:

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In addition to the above, Toyota also operates a Japanese-language web portal for automobile information, GAZOO.com. The name “GAZOO” originates from the Japanese word gazo, meaning images. GAZOO was established as an Internet membership service linking Toyota, its national dealer network and GAZOO members, and has provided information on new and used Toyota vehicles and related services, as well as online shopping services. GAZOO later expanded to include information on other automakers, as well as a rich blog feature as a social networking portal site on automobiles.

Furthermore, in 2010, by utilizing technology cultivated through the Internet and telematics services, Toyota developed the Toyota Smart Center (“TSC”) that optimally controls electricity and links BEVs and PHEVs with homes. Toyota aims to offer new services, achieve better vehicle quality and enhance product attractiveness, as

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well as contribute further to society by utilizing the vehicle information, road conditions and other parameters collected via telematics services and stored at the TSC. With regard to contribution to society, Toyota began offering the Big Data Traffic Information Service in June 2013, through which traffic information, statistics and other related information are provided to local governments, universities and businesses to support traffic flow improvement and assist disaster prevention measures. In December 2016, Toyota launched the TC Smartphone Navigation free-of-charge to users, including those other than Toyota users, to provide readily usable route history maps. Toyota plans to continue to work with new information technologies and the IT industry to establish a framework for TSC’s global implementation and to realize a mobility society of the future.

In 2016, Toyota has been working actively on “connected car technology” and alliances with other companies for effective vehicle data utilization to “make ever-better cars” and for safer and securer “connected” service. In January 2016, Toyota announced a “connected vehicle framework” to increase installation of DCMs into a broader range of its vehicles starting in the United States from 2017. In April 2016, Toyota established a new company, “Toyota Connected, Inc.,” in the United States to consolidate and analyze information collected from vehicles and to develop new products, and thereby promoting “making ever-better cars” through utilizing big data.

As a further engagement in the insurance industry, Toyota established Toyota Insurance Management Solutions USA, LLC (“TIMS”), a new U.S. telematics car insurance services company, to promote analysis of big data and development of algorithms. TIMS provides telematics insurance services best suited to Toyota’s customers by consolidating Toyota’s data, financing and insurance knowhow.

Connected with society and the community (ECO & CONVENIENCE) — MaaS (Mobility as a Service)

In November 2016, based on the proliferation and popularity of mobility services such as car-sharing, Toyota started to establish MSPF, which has various functions to support mobility services. MSPF is a platform that aggregates and covers individual business functions, such as vehicle management systems and leasing programs, that Toyota developed and offered to mobility service providers such as ride-sharing operators when working together with them. In addition, as one example of the functions that MSPF offers, Toyota developed the smart key box (“SKB”) that enables users to lock and unlock doors and to start the engine with their smartphones — thus providing a safer and more secure way of locking/unlocking doors and starting the engine. Furthermore, Servco Pacific Inc., a Toyota dealer in Hawaii, began a car-sharing services program in July 2018.

In terms of ride-sharing, in May 2016, Toyota and Uber entered into a memorandum of understanding to explore collaboration with respect to ride-sharing. In August 2018, the scope of collaboration was expanded: Toyota and Uber will be developing vehicles utilizing the technologies of both companies and used exclusively for ride-sharing, and introducing the same into Uber’s ride-share network. Technology establishment of the in-vehicle equipment and control interface is underway. Furthermore, in April 2019, in order to accelerate the development and practical realization of automated driving vehicles for ride-sharing, Toyota announced that it will invest in Uber Advanced Technologies Group (“Uber ATG”) together with Denso Corporation and SoftBank Vision Fund L.P. Uber ATG was acquired by Aurora Innovation Inc. (“Aurora”) in December 2020. In February 2021, Toyota announced that Toyota and Denso will team up with Aurora to develop and manufacture automated driving vehicles based on the mass-produced Sienna for ride-hailing companies such as Uber.

Toyota invested in May Mobility, a pioneering venture company engaged in the development of the automated driving technologies and mobility service businesses in North America. In May 2021, May Mobility announced that it would launch public road testing of automated driving vehicles that are based on the Sienna and equipped with May Mobility’s autonomous driving kit (ADK).

In China, Toyota announced its collaboration with Didi Chuxing (“DiDi”) on e-Palette in January 2018. In July 2019, Toyota and DiDi agreed to expand their collaboration to include MaaS in China, pursuant to which Toyota has established a joint venture with GAC Toyota Motor Co., Ltd. (GTMC) for vehicle-related services for

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ride-hailing drivers. Through this agreement, Toyota and DiDi provide automobile maintenance support utilizing MSPF and safe driving guidance to ride-hailing drivers and promote initiatives such as to reduce automobile accidents. The two companies also plan to shift to full-scale implementation of services that they have been developing in China to realize more-efficient and high-quality ride-hailing businesses.

In Southeast Asia, Toyota started to collaborate with Grab in August 2017, and commenced a pilot program in Singapore to collect driving data generated from vehicles owned by Grab. In June 2018, Toyota further expanded the collaboration with Grab and invested in Grab. Toyota moved forward with providing various connected services that use MSPF to Grab. As a specific example of such services, in December 2018 Toyota provided the total care service for vehicles to 1,500 vehicles owned by Grab. Toyota started both to provide high-efficiency maintenance reflecting TPS, as well as to cooperate with local insurance companies with the aim of providing insurance services by utilizing driving data. The two companies launched the same initiatives in Indonesia, the principal market for Grab, in 2020.

In August 2016, Toyota and Japan Federation of Hire-Taxi Associations entered into a memorandum of understanding to explore areas for collaboration, so as to develop and introduce the “Japanese taxi of the future.” In February 2018, Toyota invested in JapanTaxi Co., Ltd. Toyota and JapanTaxi agreed on business collaboration in such areas as big-data collection, connected terminals for taxis, and the joint development of vehicle-dispatch support systems to revitalize the taxi industry as a whole and improve its efficiency. Later, Toyota further developed a collaboration with Mobility Technologies Co., Ltd., which was created from JapanTaxi in April 2020 through business combinations. The two companies are advancing efforts in both tangible and intangible aspects to realize a free and seamless mobility society utilizing the mobility of taxies.

Meanwhile, in October 2018, Toyota agreed to work with SoftBank Corp. (“SoftBank”) on the realization of a Mobility Network that delivers safe and comfortable mobility to all people. In February 2019, Toyota and SoftBank established a joint venture, MONET Technologies Inc. (“MONET”). Anticipating the realization of an automated driving society, cooperation with local governments in Japan to provide next-generation on-demand mobility service began. The number of cooperating local governments has increased to more than 100 as of today. In March 2019, MONET established the Monet Consortium in an effort to promote inter-corporate cooperation that aims for the realization of mobility innovation. The Monet Consortium currently has more than 660 participants.

With the background of expanding mobility services and the tightening of data regulations in Europe, Toyota established Toyota Connected Europe, Limited in March 2018, and is promoting car-sharing businesses by utilizing MSPF in Europe in coordination with local dealers.

In January 2018, at “2018 International CES” held in Las Vegas, Nevada in the United States, Toyota announced the “e-Palette Concept,” an EV designed exclusively for Autono-MaaS, leveraging electrification, connected vehicles and automated driving technologies. The e-Palette Concept can be adapted for various services, such as passenger transportation, logistics services or retail services, and is the embodiment of Toyota’s concept of “new mobility” that supports the lifestyles of its customers. Amazon.com, Inc., DiDi Chuxing, Pizza Hut, LLC, Uber and Mazda Motor Corporation are collaborating with Toyota as initial launch partners in order to explore vehicle specifications that are even more practical and to ensure the realization of a new mobility service. Going forward, Toyota is planning to support the transportation of athletes and staff in the Olympic and Paralympic village in the 2021 Tokyo Olympic and Paralympic Games, and launch the service in the early 2020s upon conducting a pilot program with alliance partners. In December 2020, Toyota announced the e-Palette, which has made strides towards practical use, and an operations management system that supports the provision of e-Palette services, at an online event.

In March 2020, Toyota and Nippon Telegraph and Telephone Corporation (“NTT”) agreed to enter into a business and capital alliance with the aim of building a long-term and continuous cooperative relationship that enables the commercialization of smart city businesses, which can solve various issues by improving the

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efficiency and sophistication of functions and services in cities and regions and create new value.    The two companies will jointly build a “Smart City Platform” as a core foundation for smart cities and introduce it in various cities in Japan and worldwide.

In October 2020, Toyota and KDDI Corporation (“KDDI”) agreed on a new business and capital alliance with the purpose of further strengthening the relationship between the two companies. With a view to developing next-generation telecommunication standards, Toyota and KDDI will jointly conduct research and development focused on telecommunication platforms that enable optimal communications between towns, homes, people and cars, develop an operations and management system for next-generation connected cars and work to address social issues arising between urban and rural areas and regional communities using big data.

Financial Services

Toyota’s financial services include loan programs and leasing programs for customers and dealers. Toyota believes that its ability to provide financing to its customers is an important value-added service. In July 2000, Toyota established a wholly-owned subsidiary, TFSC, to oversee the management of Toyota’s finance companies worldwide, through which Toyota aims to strengthen the overall competitiveness of its financial business, improve risk management and streamline decision-making processes. Toyota has expanded its network of financial services, in accordance with its strategy of developing auto-related financing businesses in significant markets. Accordingly, Toyota currently operates financial services companies in 40 countries and regions, which support its automotive operations globally.

Toyota’s sales revenues from its financial services operations were ¥2,162.2 billion in fiscal 2021 and ¥2,193.1 billion in fiscal 2020. In fiscal 2021, there was major downward pressure on profit in the financing business due to a decline in sales of new cars due to the impact of COVID-19, but the business as a whole saw steady growth mainly due to higher used-vehicle prices in the United States, lower interest rates worldwide and the accumulated balance of earning assets resulting from the enhanced used-vehicle financing and other measures. Under such circumstances, as a result of Toyota’s continued collaboration with dealers in various countries and regions and efforts to expand products and services that meet customer needs, Toyota’s share of financing provided for new car sales of Toyota and Lexus vehicles in regions where TFSC operates remained at a high level of approximately 35%, and the balance of earning assets continued to steadily increase globally, with the exception of some countries. In addition, Toyota is making efforts to provide both its customers and dealers with stable financial services by diversifying its funding methods in recent years, such as issuing Green Bonds in addition to using already existing means as commercial paper, corporate bonds, bank borrowings, ABCP (Asset Backed Commercial Paper) and ABS (Asset Backed Securities). Furthermore, Toyota continued to perform detailed credit appraisals and serve customers by monitoring bad debt and loan payment extensions, and the percentage of credit losses remained low, at 0.23% and 0.29% in fiscal years 2021 and 2020, respectively. Toyota continues to work towards improving its risk management measures in connection with credit and residual value risks.

Toyota Motor Credit Corporation is Toyota’s principal financial services subsidiary in the United States. Toyota also provides financial services in 39 other countries and regions through various financial services subsidiaries, including:

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Toyota Motor Credit Corporation provides a wide range of financial services, including retail financing, retail leasing, wholesale financing and insurance. Toyota Finance Corporation also provides a range of financial services, including retail financing, retail leasing and credit cards. Toyota’s other finance subsidiaries provide services including retail financing, retail leasing and wholesale financing.

The KINTO beloved-car subscription service, which started in Japan in 2019 in response to the shift from “owning” cars to “using” cars, has been steadily enhancing its service lineup and gaining awareness. In Europe, full service leasing is being made available in wider areas. Furthermore, Toyota developed and provides customers with the payment application “TOYOTA Wallet” as a platform that contributes to improving the convenience of customers’ daily payments and creating a foundation for a mobility society.

Finance receivables for all of Toyota’s dealer and customer financing operations were ¥19,205.7 billion as of March 31, 2021, representing an increase of 12.7% as compared to the previous year. The majority of Toyota’s financial services are provided in North America. As of March 31, 2021, 54.6% of Toyota’s finance receivables were derived from financing operations in North America, 13.5% from Asia, 13.2% from Europe, 8.3% from Japan and 10.4% from other areas.

Approximately 45% of Toyota’s unit sales in the United States during fiscal 2021 included a finance or lease arrangement with Toyota. Because the majority of Toyota’s financial services operations are related to the sale of Toyota vehicles, a decrease in vehicle unit sales may lead to a contraction of Toyota’s financial services operations.

The worldwide financial services market is highly competitive. Toyota’s competitors in retail financing and retail leasing include commercial banks, credit unions and other finance companies. Commercial banks and other automobile finance subsidiary companies serving their parent automobile companies are competitors of Toyota’s wholesale financing activities. Competitors in Toyota’s insurance operations are primarily national and regional insurance companies.

For information on Toyota’s finance receivables and operating leases, please see “Operating and Financial Review and Prospects — Operating Results — Financial Services Operations.”

Retail Financing

Toyota’s finance subsidiaries acquire new and used vehicle installment contracts primarily from Toyota dealers. Installment contracts acquired must first meet specified credit standards. Thereafter, the finance company retains responsibility for installment payment collections and administration. Toyota’s finance subsidiaries acquire security interests in the vehicles financed and can generally repossess vehicles if customers fail to meet their contractual obligations. Almost all retail financings are non-recourse, which relieves the dealers from financial responsibility in the event of repossession. In most cases, Toyota’s finance subsidiaries require their retail financing customers to carry automobile insurance on financed vehicles covering the interests of both the finance company and the customer.

Toyota has historically sponsored, and continues to sponsor, special lease and retail programs by subsidizing below market lease and retail contract rates.

Retail Leasing

In the area of retail leasing, Toyota’s finance subsidiaries acquire new vehicle lease contracts originated primarily through Toyota dealers. Lease contracts acquired must first meet specified credit standards after which the finance company assumes ownership of the leased vehicle. The finance company is generally permitted to take possession of the vehicle upon a default by the lessee. Toyota’s finance subsidiaries are responsible for contract collection and administration during the lease period. The residual value is normally estimated at the

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time the vehicle is first leased. Vehicles returned to the finance subsidiaries at the end of their leases are sold by auction. For example, in the United States, vehicles are sold through a network of auction sites, as well as through the Internet. In most cases, Toyota’s finance subsidiaries require lessees to carry automobile insurance on leased vehicles covering the interests of both the finance company and the lessee.

Wholesale Financing

Toyota’s finance subsidiaries also provide wholesale financing primarily to qualified Toyota dealers to finance inventories of new Toyota vehicles and used vehicles of Toyota and others. The finance companies acquire security interests in vehicles financed at wholesale. In cases where additional security interests would be required, the finance companies take dealership assets or personal assets, or both, as additional security. If a dealer defaults, the finance companies have the right to liquidate any assets acquired and seek legal remedies.

Toyota’s finance subsidiaries also make term loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, other dealership assets and/or personal assets of the dealers.

Insurance

Toyota provides insurance services in the United States through Toyota Motor Credit Corporation’s wholly-owned subsidiary, Toyota Motor Insurance Services, Inc. (“TMIS”) and its wholly-owned insurance company subsidiaries. Their principal activities include marketing, underwriting and claims administration. TMIS also provides coverage related to vehicle service agreements through Toyota dealers to customers. In addition, TMIS also provides coverage and related administrative services to affiliated companies of Toyota Motor Credit Corporation. Toyota dealers in Japan and in other countries and regions also engage in vehicle insurance sales.

Other Financial Services

Toyota Finance Corporation launched its credit card business in April 2001 and began issuing Lexus credit cards in 2005 when the Lexus brand was introduced in Japan. As of March 31, 2021, Toyota Finance Corporation has 16.3 million card holders (including Lexus credit card holders).

All Other Operations

In addition to its automotive operations and financial services operations, Toyota is involved in a number of other non-automotive business activities. Sales revenues for these activities totaled ¥1,052.3 billion in fiscal 2021 and ¥1,504.9 billion in fiscal 2020.

Information Technology

See “— Automotive Operations — Realizing a Smart Mobility Society that expands through connected car technologies” for a description of Toyota’s information technology.

Governmental Regulation, Environmental and Safety Standards

Toyota is inevitably required to comply with the regulations applied to its products relating to the emission levels, fuel economy, noise, safety and so on. In addition, Toyota is subject to laws in various jurisdictions regulating the levels of pollutants generated by its plants. Toyota has incurred significant costs in complying with these laws and regulations and expects to incur significant compliance costs in the future. Toyota’s management views leadership in environmental protection as an important competitive factor in the marketplace.

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International Harmonization of Vehicle Regulations

The World Forum for Harmonization of Vehicle Regulations (WP.29) of the United Nations Economic Commission for Europe (UNECE) has developed certain international rules and regulations such as the UN Regulations (UNR) under the 1958 Agreement and the Global Technical Regulations (GTR) under the 1998 Agreement and has been working to promote international harmonization of the technical prescriptions for the construction and approval of wheeled vehicles. The UNR has been adopted in jurisdictions such as Japan, EU and Russia, and each participating party’s type approvals are mutually recognized under the 1958 Agreement. The parties to the 1998 Agreement include the U.S., China and India in addition to Japan, the EU and Russia, and 21 Global Technical Regulations have been established to date. As the progress of the international harmonization of technical prescriptions will lead to the reduction of the variations in product specifications from country to country, it is expected to lead to greater efficiency in Toyota’s product development.

Vehicle Emissions

Japanese Standards

The Air Pollution Control Act of Japan and the Road Transport Vehicle Act and the Act Concerning Special Measures for Total Emission Reduction of Nitrogen Oxides and Particulate Matter from Automobiles in Specified Areas regulate vehicle emissions in Japan. In recent years, in addition to the strengthened regulations on particulate matters emitted from gasoline-fueled vehicles, as can be seen from the adoption of the Worldwide Harmonized Light Vehicles Test Procedure (WLTP) driving cycles and the introduction of the Real Driving Emission (RDE), more stringent regulations have been decided to be introduced to match the European Standards. Moreover, both the Noise Regulation Act and the Road Transport Vehicle Act provide for noise reduction standards on automobiles in Japan.

U.S. Federal Standards

The federal Clean Air Act directs the Environmental Protection Agency (“EPA”) to establish and enforce air quality standards, including emission control standards on passenger vehicles, light-duty trucks and heavy-duty vehicles. Manufacturers are not permitted to sell vehicles in the United States that do not meet the standards. In March 2014, the EPA finalized new “Tier 3” tailpipe emission and evaporative emission standards for passenger vehicles, light-duty trucks, medium-duty passenger vehicles and some heavy-duty vehicles. Under the rule, tailpipe emission standards for volatile organic compounds, carbon monoxide, nitrogen oxides, and particulate matter, as well as standards for evaporative emissions and guaranteed useful life (which relates to a vehicle’s ability to meet emission limits over time), would become increasingly stringent in phases from 2017 to 2025. The rule would bring federal emission standards for these pollutants in line with California’s emission standards.

The new Tier 3 rule also required reductions in gasoline’s sulfur content beginning in 2017.

California Standards

Under the federal Clean Air Act, the State of California has been permitted to establish its own vehicle emission control standards if it receives a waiver from the EPA that allow the California standards to preempt less-stringent federal standards. The EPA granted such a preemption waiver to California in January 2013. The waiver provides a legal basis for California’s mandate for zero-emission vehicles. Pursuant to the mandate, the CARB requires that a specified percentage of a manufacturer’s passenger vehicles and light-duty trucks sold in California be “zero-emission vehicles” (vehicles producing no emissions of regulated pollutants), as well as permits certain advanced technology vehicles such as PHEVs, and alternative fuel vehicles that meet “partial zero-emission vehicles requirements,” to be granted partial qualification as BEVs or FCEVs. Toyota’s MIRAI qualifies as a zero-emission vehicle. The current Prius Prime has been certified as a partial zero-emission vehicle. Toyota intends to continue to develop additional advanced technologies and alternative fuel technologies that will allow other vehicles to qualify as zero-emission vehicles or partial-zero-emission vehicles.

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In January 2012, the CARB adopted the Advanced Clean Cars (“ACC”) program. The ACC program, developed in coordination with the EPA and the federal National Highway Traffic Safety Administration (“NHTSA”), includes Low-Emission Vehicle (LEV) regulations, known as the LEV III regulations, that reduce emissions of smog-causing pollutants (volatile organic compounds, carbon monoxide, nitrogen oxides and particulate matter) and greenhouse gases from cars and light-duty trucks for model years 2015 to 2025. The regulations also include standards for evaporative emissions and guaranteed useful life.

California has adopted regulations that require that On-Board Diagnostics (“OBD”) systems be incorporated into the computers of vehicles sold in California. OBD systems monitor components that can affect the emission performance of a vehicle and, if a problem with a component is detected, illuminates a warning light on the vehicle’s instrument panel. The systems also store the malfunction information in the computer to facilitate repairs. California’s OBD regulations are the most stringent in the world.

Other States’ Standards

Thirteen states (Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington) have adopted regulations substantially similar to California’s low-emission vehicle requirement, and 12 of these have adopted California’s zero-emission vehicle requirement. In September 2019, the Governors of Minnesota and New Mexico indicated that they planned to adopt California’s low vehicle emissions requirement as well.

Canadian Standards

Canada has finalized vehicle emission standards equivalent to the federal standards in the United States in October 2014, in response to the strengthening of the federal vehicle emission standards in the United States applicable to model years 2017 to 2025. Furthermore, certain Canadian provinces are currently considering enacting their own regulations. On January 11, 2018, the Ministry of Sustainable Development, Environment and the Fight against Climate Change of the Province of Quebec issued regulations on zero-emission vehicles including BEVs, FCVs and PHEVs, among others. In November 2018, the premier of British Columbia announced that the government would introduce legislation concerning zero-emission vehicles (indicating the phase-in introduction starting from model year 2020). Canada also adopted a more stringent fuel rule, which is based on the fuel rule in the United States, that reduces refineries’ annual average sulfur concentration of gasoline to 10mg/kg from 2017 with a new addition of credit system to secure compliance.

European Standards

In 2007, the European Parliament adopted more stringent emission standards for passenger vehicles and light commercial vehicles. The effective date for phasing in these stricter standards for passenger vehicles was September 2014 for Euro 6. For light commercial vehicles, the effective date was September 2015 for Euro 6.

The primary focus of Euro 6 is to limit further emissions of diesel-powered vehicles and bring them down to a level equivalent to gasoline-powered vehicles. The EU is now implementing the Real Driving Emission (“RDE”) regulations, which require manufacturers to conduct on-road emissions tests using portable emissions testers to demonstrate compliance. Since September 2017, manufacturers have been required to reduce the divergence between the regulatory limit tested in laboratory conditions and the values of RDE tests, and this divergence factor was made more stringent for all new vehicles effective January 2021. The EU is now also implementing the Worldwide harmonized Light vehicles Test Procedure (WLTP), which was introduced on September 1, 2017. The On-Board Diagnostics (OBD) regulations have also been tightened in terms of both subject parts and regulatory values. Effective January 1, 2019, the EU implemented an improved WLTP that purports to eliminate test flexibilities and introduces on-board fuel and energy consumption monitoring devices.

Chinese Standards

The next-generation emissions regulations for passenger vehicles, or Level 6 Emissions Regulations (China 6), were issued as GB18352.6-2016 at the end of 2016, pursuant to which tighter requirements will be

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implemented in two steps, depending on the regulated subjects and the implementation timing. Specifically, China 6a will apply to all models to be sold or registered in July 2020 and beyond, and China 6b will apply to all models to be sold or registered in July 2023 and beyond. China 6b will also introduce the RDE Regulations adopted under Euro 6. The On-Board Diagnostics (OBD) regulations have also been tightened in terms of both subject parts and regulatory values. With respect to fuels in the market, the quality standards and the implementation from January 2019 for China 6 gasoline fuel and China 6 diesel fuel have been provided in GB17930-2016 and GB19147-2016 so as to keep up with the implementation timing of China 6 emissions regulations. Moreover, for areas where the air quality improvement is an urgent necessity, China 6 is scheduled to be implemented from July 2019 ahead of the implementation throughout China.

For heavy-duty diesel-powered commercial vehicles, pursuant to GB17691-2005, the China V Emissions Regulations are being implemented from July 2017. With the establishment of GB17691-2018, which provides next-level China VI Emissions Regulations (China VI), it has been decided that China VIa will be implemented from July 2021 and China VIb from July 2023 (these regulations will apply to gas-fueled vehicles and public vehicles for urban areas earlier than those dates). For heavy-duty gasoline-powered commercial vehicles, pursuant to GB14762-2008, Level IV Emissions Regulations (China IV) apply to new models after July 2012. After the first day the regulation is implemented to a new model, all new models released during the following one-year period also become subject to the regulation. Tightening of the next-generation emissions regulations (China V and China VI) is currently considered for heavy-duty gasoline-powered commercial vehicles.

Standards of Other Countries or Regions

In particular, in India, given the worsening air pollution, in December 2015, the Supreme Court banned the registration of diesel cars with engines that are two liters or larger in the National Capital Region, including the Delhi metropolitan area. In August 2016, the ban on registration was lifted on the condition that a deposit equal to 1% of the vehicle’s retail price is to be paid to the Environment Pollution Control Authority. Furthermore, the government accelerated the implementations of BS-6 (equivalent to EURO6) to 2020. Moreover, Thailand has also decided to introduce regulations equivalent to Euro 5 and Euro 6.

Vehicle Fuel Economy

Japanese Standards

The Act on Rationalizing Energy Use requires automobile manufacturers to improve their vehicles to meet specified fuel economy standards. Fuel economy standards are established according to the types of vehicles, and are required to be met by either fiscal 2011 (April 2010-March 2011), fiscal 2016 (April 2015-March 2016), fiscal 2021 (April 2020-March 2021), fiscal 2023 (April 2022-March 2023), fiscal 2026 (April 2025-March 2026) or fiscal 2031 (April 2030-March 2031). From 2020, if the WLTP mode is applied as a vehicle emissions test cycle, fuel economy test must be also conducted based on the WLTP mode.

U.S. Standards

The Federal Motor Vehicle Information and Cost Savings Act requires automobile manufacturers to comply with CAFE standards. A manufacturer is subject to substantial civil penalties if, in any model year, its vehicles do not meet the CAFE standards. Manufacturers that exceed the CAFE standards earn credits determined by the difference between the average fuel economy performance of their vehicles and the CAFE standards. Credits earned for the five model years preceding the current model year, and credits projected to be earned for the next three model years, can be used to meet CAFE standards in a current model year.

In December 2011, the EPA and the NHTSA issued a joint proposed rule to further reduce greenhouse gas emissions and improve fuel economy for passenger vehicles, light-duty trucks and medium-duty passenger vehicles for model years 2017 through 2025. Pursuant to the rule, which was finalized in August 2012, these vehicles are required to meet an estimated combined average emission level of 163 grams of carbon dioxide per

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mile in model year 2025, equivalent to 54.5 miles per gallon if these requirements are met through improvements in fuel economy standards. At the same time, the NHTSA issued CAFE standards for passenger vehicles and light-duty trucks that would require manufacturers to meet an estimated combined average fuel economy level of 49.6 miles per gallon in model year 2025.

On August 24, 2018, the EPA and the NHTSA proposed the Safer Affordable Fuel Efficient (“SAFE”) rule, which was meant to replace the rule enacted in 2012 with less stringent greenhouse gas emission standards and CAFE standards. On September 27, 2019, the EPA and the NHTSA issued Part 1 of the final SAFE rule, which is also referred to as the One National Program rule. The One National Program rule withdraws California’s waiver to issue its own, more stringent greenhouse gas emission standards under the LEV III program. The One National Program rule also calls into question the validity of California’s zero emission vehicle mandate (and the other state laws adopting it). On March 31, 2020, the EPA and NHTSA issued Part 2 of the final SAFE rule, which calls for a 1.5% annual increase in the stringency of greenhouse gas emissions and CAFE standards for cars and light trucks for model years 2021 through 2026, as opposed to the 5% annual increase called for in the prior rule enacted in 2012. The EPA and NHTSA project that average fuel economy for 2026 model year vehicles will be 40.4 miles per gallon, compared with 46.7 miles per gallon projected for 2025 model year vehicles under the previous rule enacted in 2012.

California has pledged, despite the SAFE rule, to maintain its more stringent greenhouse gas emission standards under the LEV III program as well as its zero-emissions vehicle mandate. On November 15, 2019, California, 22 other states, the District of Columbia, and the cities of Los Angeles and New York filed suit in the U.S. Court of Appeals for the District of Columbia to challenge the revocation, pursuant to the One National Program rule, of California’s waiver.

On January 20, 2021, President Biden issued an Executive Order that directs the EPA and NHTSA to review the SAFE rule and make a recommendation regarding whether the rule should be suspended, revised, or rescinded; and on February 8, 2021, the U.S. Court of Appeals for the District of Columbia granted the Biden Administration’s motion to hold the litigation in abeyance. It is expected that, by July 2021, the EPA will present a proposal for fuel economy and emission standards that are more stringent than the standards under the SAFE rule. Four other automakers had reached a voluntary, non-legally binding agreement with California to increase fuel efficiency by 3.7% each year (rather than 1.5% under the SAFE rule). It is unclear whether the EPA will adopt this new California compromise standard or promulgate more stringent standards.    Whatever the outcome, Toyota plans to meet applicable fuel economy and emissions standards by further developing fuel-efficient technology, alternative fuel technology and other advanced technology.

European Standards

In the EU, the average carbon dioxide emissions limit for light commercial vehicles is currently 147 grams per kilometer and for passenger vehicles 95 grams per kilometer. Manufacturers failing to meet their targets incur penalties of €95 from the first gram of exceedance onwards in 2019 and beyond. Starting in 2021, these emissions targets are tested using the WLTP.

In April 2019, the European Parliament and the Council adopted new carbon dioxide standards for cars and light commercial vehicles for the period after 2020. Average emissions of the EU fleet of new cars and light commercial vehicles in 2025 must be 15% lower than in 2021, and by 2030, emissions must be reduced further to 37.5% and 31% of 2021 levels for cars and light commercial vehicles, respectively. From 2025, a crediting system will be introduced to relax a manufacturer’s specific carbon dioxide emissions targets where the manufacturer produces numbers of “zero and low-emission vehicles” above specified benchmarks.

To achieve a climate-neutral EU by 2050 and an intermediate target of at least 55% net reduction in greenhouse gas emissions by 2030, the European Commission is preparing a revision of these carbon dioxide emissions targets as part of its “Fit for 55%” package, although these revisions have not yet been proposed.

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An EU directive on motor vehicle air conditioning units requires manufacturers to replace the refrigerants with that having a lower global warming impact for all newly registered vehicles starting in January 2017.

Chinese Standards

Fuel consumption regulations are being implemented pursuant to the Chinese National Standards (“GB”), and the manufacture and sale of vehicle models not meeting these regulations are prohibited. For light-duty passenger vehicles, GB27999-2011 was issued. In these Level 3 Fuel Consumption Regulations for passenger cars, the regulation framework was substantially revised, such as the introduction of new regulations requiring automobile manufacturers to meet standards of corporate average fuel consumption across models in addition to existing regulations requiring each model to meet consumption standards. Furthermore, in order to achieve the national target for average fuel efficiency for 2020, the following more stringent fuel consumption regulations have been enacted and enforced. First, GB19578-2014, which has been enacted to strengthen regulations for each model, is being applied to new models after January 2016. Second, GB27999-2014, which has been enacted as Level 4 Fuel Consumption Regulations for passenger vehicles to strengthen corporate average regulations, has been in effect since 2016. In addition, Level 5 Fuel Consumption Regulations for passenger vehicles are being examined as more stringent next-generation fuel consumption regulations. For light-duty commercial vehicles, GB20997-2015 was enacted, which further applied Level 3 Fuel Consumption Regulations to all new vehicles from January 2018 and is currently being enforced.

With respect to large commercial vehicles, pursuant to GB30510-2014, Level 2 Fuel Consumption Regulations apply to new vehicles from July 2014 and are currently being enforced. In addition, in an effort to further strengthen fuel consumption regulations, GB30510-2018 was enacted, pursuant to which Level 3 Fuel Consumption Regulations are scheduled to be applied to new vehicles from July 2019.

Vehicle Safety

Japanese Standards

Japan has been participating in the 1958 Agreement of the UN and has a number of technical standards that are harmonized with the UN Regulations.

Furthermore, unique to Japan, the safety standards for automated driving systems were established in March 2020, requiring, in addition to a certain level of performance of automated driving system, the installation of an event data recorder and cyber security measures against unauthorized access. In addition, a certification program was introduced in April 2020 with respect to the system to control sudden acceleration by mixing up the gas and brake pedals as well as the collision damage mitigation brake system.

In addition, fuel-cell vehicles using compressed hydrogen are subject to the approval and control under the High Pressure Gas Safety Act in addition to the Road Vehicles Act.

U.S. Standards

In the U.S., in light of the Executive Order issued by President Trump on January 30, 2017, few safety standards providing new technical requirements have been issued. With respect to automated driving vehicles, on January 8, 2020 the Trump Administration and the U.S. Department of Transportation released Ensuring American Leadership in Automated Vehicle Technologies: Automated Vehicles 4.0 (“AV 4.0”). AV 4.0 unified efforts across 38 Federal departments, independent agencies, commissions, and Presidential Executive Offices in providing high level guidance to state and local governments and other stakeholders. AV 4.0 also established Federal principles for the development and integration of automated vehicles.    California and many other states, despite AV 4.0, have adopted different approval systems so that automated vehicles must be compliant with regulations and systems that vary from state to state. On December 23, 2020, California issued its first autonomous vehicle deployment permit.

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European Standards

In December 2019, the EU issued the revised General Safety Regulation to tighten the requirements concerning safety and the protection of vehicle occupants and vulnerable road users. This revised General Safety Regulation will make certain vehicle safety equipment mandatory in stages starting 2022, including: advanced emergency braking, emergency lane keeping systems, driver drowsiness and attention warning, intelligent speed assistance, reversing detection systems, tire pressure monitoring systems, and data recorders in case of an accident (“event data recorders”). In relation to this, various UN Regulations are being developed, but it is provided that the equipment for which UN Regulations have not been developed, the EU will establish its own technical standards.

Furthermore, a major overhaul of the EU-type approval framework for motor vehicles was issued in May 2018. The new regulation purports to raise the quality and independency of vehicle type-approval and testing, to increase checks of vehicles that are already on the EU market, and to strengthen European Commission oversight of the framework. It became mandatory for all new vehicle models as of September 1, 2020. Automated driving vehicles must obtain exemption under this framework.

United Nations Standards

The United Nations restructured the existing working parties and established the Working Party on Automated/Autonomous and Connected Vehicles (GRVA) that is dedicated to the development of regulations on automated driving. The GRVA is developing regulations covering functional safety requirements, new evaluation test method requirements, cybersecurity, software updates, data recording for automated driving vehicles and data recording in case of an accident. The new regulations on cyber security, software updates and automated lane keeping system came into effect in January 2021.

Chinese Standards

Vehicle safety regulations in China were in general established having regard to the UN regulations. However, China’s own national technical standards on functions such as batteries, motors, and the charging and remote surveillance of BEVs have been made mandatory. Fuel-cell vehicles are subject to the supervising regulations on the safety of high pressure gas in addition to the vehicle type approval requirement. Moreover, in accordance with the Made in China 2025 policy, more than 100 standards for intelligent connected vehicles (ICV) are being developed (including automation, telecommunication and security).

Environmental Matters

Japanese Standards

Toyota’s automotive operations in Japan are subject to substantial environmental regulation under laws such as the Air Pollution Control Act, the Water Pollution Prevention Act, the Noise Regulation Act and the Vibration Control Act. Under these laws, if a business entity establishes or alters any facility that is regulated by these laws, the business entity is required to give prior notice to regulators, and if a business entity discharges, uses or stores substances that are environmental burdens or causes noise or vibration from such facility, the business entity is also required to comply with the applicable standards. Toyota is also subject to local regulations, which in some cases impose more stringent obligations than the Japanese central government requirements. Toyota has complied with these regulations. Under the Waste Management and Public Cleansing Act, producers of industrial waste must dispose of industrial waste in the manner prescribed in the same act. Toyota has also complied with the same act.

The Soil Contamination Countermeasures Act of Japan requires that land owners conduct contamination testing and submit a report at the time they cease to use hazardous substances, such as in connection with the sale of a former factory, or if there is a possibility of health hazards due to land contamination. If it is found that land

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contamination exceeds a certain level, the relevant prefectural authority designates the area as considered to be contaminated, orders the land owner to submit a plan for decontamination (such plan must describe the measures to be taken in the area, the reasons therefor, and the deadline for implementing such measures, etc.), and has the land owner take such measures in accordance with such plan. Toyota is suitably managing its land in accordance with the same law. In addition, under the Act on Recycling, etc. of End-of-Life Vehicles, vehicle manufacturers are required to take back and recycle specified materials (automotive shredder residues, air bags and fluorocarbons) of end-of-life vehicles and the provisions concerning such obligations of vehicle manufacturers became effective in January 2005. Toyota has coordinated with relevant parties to establish a vehicle take-back and recycle system throughout Japan. As a result, in fiscal 2020, Toyota achieved a recycling/recovery rate of 96% for automobile shredder residue (the legal requirement being 70%) and 95% for air bags (the legal requirement being 85%) and reached the targets set forth in this law.

U.S. Standards

Toyota’s assembly, manufacturing and other operations in the United States are subject to a wide range of environmental regulation under the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Pollution Prevention Act of 1990 and the Toxic Substances Control Act. Toyota is also subject to a variety of state legislation that parallels, and in some cases imposes more stringent obligations than, federal requirements. These federal and state regulations impose severe restrictions on air- and water-borne discharges of pollution from Toyota facilities, and stringent requirements governing the handling of hazardous materials at Toyota facilities and the disposal of wastes from Toyota operations. Toyota is subject to many similar requirements in its operations in Europe, Canada and other countries.

Pursuant to the Clean Air Act, the EPA has promulgated National Ambient Air Quality Standards (“NAAQS”) for six “criteria” pollutants, including for ozone and particulate matter. The Clean Air Act requires that the EPA review and possibly revise these NAAQS every five years. On December 14, 2012, the EPA made the annual health-based particulate matter NAAQS more stringent. On October 1, 2015, the EPA made the annual health-based and welfare-based ozone NAAQS more stringent. The revised annual health-based particulate matter NAAQS and the revised annual health-based and welfare-based ozone NAAQS, as well as any future NAAQS revisions, could lead to additional pollution control requirements on the industry, including on Toyota’s manufacturing operations.

Toyota expects growing pressure in the next several years to further reduce emissions from motor vehicles and manufacturing facilities.

European Standards

In 2014, the EU adopted a regulation to reduce noise produced by cars, vans, buses, coaches and light and heavy trucks. Noise limit values must ultimately be lowered by four A-weighted decibels for vehicles other than trucks, and three A-weighted decibels for trucks. Compliance must be achieved in three steps over a ten to 12-year period.

The European Commission is currently reviewing the EU Directive on End-of-Life Vehicles with a public consultation process. The Commission expects to present a legislative proposal for revisions to this directive in 2022.

Toyota believes that its operations are materially in compliance with environmental regulatory requirements concerning its facilities and products in each of the markets in which it operates. Toyota continuously monitors these requirements and takes necessary operational measures to ensure that it remains in material compliance with all of these requirements.

Toyota believes that environmental regulatory requirements have not had a material adverse effect on its operations. However, compliance with environmental regulations and standards has increased costs and is

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expected to lead to higher costs in the future. Therefore, Toyota recognizes that effective environmental cost management will become increasingly important. Moreover, innovation and leadership in the area of environmental protection are becoming increasingly important to remain competitive in the market. As a result, Toyota has proceeded with the development and production of environmentally friendly technologies, such as hybrid electric vehicles, PHEVs, FCEVs, BEVs and high fuel efficiency, low emission engines.

In addressing environmental issues, based on an assessment of the environmental impact of its products through their entire life cycles, from production through sales, disposal and recycling, Toyota, as a manufacturer, strives to take all possible measures from development stage and continues to work towards technological innovations to make efficient use of resources and to reduce the burden on the environment.

Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934

None.

Research and Development

The overriding goals of Toyota’s technology and product development activities are to minimize the negative aspects of cars, such as traffic accidents and impact on the environment, and maximize the positive aspects, such as driving pleasure, comfort and convenience. By achieving these sometimes conflicting goals to a high degree, Toyota seeks to open the door to the automobile society of the future. To ensure efficient progress in research and development activities, Toyota coordinates and integrates all research and development phases, from basic research and advanced research to forward-looking technology and product development. With respect to long-term basic research in areas such as energy, the environment, information technology, telecommunications and materials, projects are regularly reviewed and evaluated in consultation with outside experts to achieve research and development cost control. With respect to forward-looking, leading-edge technology and product development, Toyota establishes cost-performance benchmarks on a project-by-project basis to ensure efficient development investment.

The chart below provides an overview of Toyota’s R&D at each phase.

Toyota is promoting research and development into the early commercialization of next generation environmentally friendly, energy-efficient and safe-vehicle technology. Toyota is also moving forward with the development of innovative technologies such as electrification, connected vehicles and automated driving so as to realize a mobility society of the future that enables everyone to enjoy freedom of movement beyond the conventional concept of vehicles. To this end, Toyota is focusing on the following areas:

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For a detailed discussion of the company’s research and development infrastructure, see “Operating and Financial Review and Prospects — Research and Development, Patents and Licenses.”

Components and Parts, Raw Materials and Sources of Supply

Toyota purchases parts, components, raw materials, equipment and other supplies from multiple competing suppliers located around the world. Toyota works closely with its suppliers to pursue optimal procurement. Toyota believes that this policy encourages technological innovation, cost reduction and other measures to strengthen its vehicle competitiveness. Toyota plans to continue purchases based on the same principle and does not anticipate any difficulty in obtaining stable supplies in the foreseeable future. For example, in 2019, Japan suffered major flooding caused by Typhoon Hagibis, but the operations of Toyota were spared from its impact thanks to utmost efforts with all Toyota suppliers to realize early restoration of damaged local areas and suppliers, as well as alternative production by other suppliers. In 2020, the impact of COVID-19 spread globally and has had an effect on the operations of some of Toyota’s automobile plants. In order to minimize the impact, Toyota continues to study alternative production methods, working together with all of its suppliers.

Because Toyota had more than 50 overseas operations in 27 countries and regions as of March 31, 2021, procurement of parts and components is being carried out not only locally in the country of the production site but also from third countries. As a result, the distribution network has become increasingly complex. In order to realize timely and efficient distribution while minimizing costs, Toyota is promoting efforts to optimize each stage of the supply chain. To this end, Toyota has developed a standardized system of global distribution and is supporting the operation of the system at each production base. The use of the global distribution system aims at implementing parts procurement that meets changes in vehicle production in a timely manner. These varying efforts, combined together, have led to maximized customer satisfaction, as well as to building a good working relationship with Toyota’s suppliers.

Toyota aims to share information and collaborate among the procurement divisions in each of the regions throughout the world in order to procure parts and materials from the most competitive suppliers among Toyota factories located in various areas worldwide. At the same time, Toyota carries out streamlining efforts together with suppliers in each country in order to achieve sustainable growth. Toyota has been working on cost reduction measures, referred to as RR-CI and VA activities. Through RR-CI activities, which are conducted in conjunction with TNGA, Toyota aims to ensure cost competitiveness through such means as thorough localization, sharing parts and components and manufacturing reforms, together with producing products matching customers’ needs in each region and vehicle category, and relentlessly reinforcing activities from a medium- to long-term perspective based on benchmarks as the third phase of RR-CI. Toyota has been continuously working on VA (value analysis) activities for the various types of vehicles already on sale in collaboration with in-house vehicle companies. In pursuit of cost reduction, Toyota focuses on “developing a real cost-competitive structure” by working together with suppliers.

In the raw material market during 2020, while prices declined from the beginning of the year, the impact of COVID-19 changed the demand structure. Market prices surged in the second half of the year against the backdrop of multiple factors on the supply side such as the sharp recovery in demand and the tight container transportation market. The prices of precious metals (palladium and rhodium) particularly soared due to the sharp recovery in demand as well as the impact of COVID-19 and a mine accident. During fiscal 2022, raw material prices are expected to experience the most significant increase since the period from calendar years 2007 to 2008. Toyota is therefore accelerating initiatives such as the replacement of raw materials with those that are less subject to price pressure and reduction of raw material usage.

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Intellectual Property

Toyota holds numerous Japanese and foreign patents, trademarks, design patents and some utility model registrations. It also has a number of applications pending for Japanese and foreign patents. While Toyota considers all of its intellectual property to be important, it does not consider any specific subset of its patents, trademarks, design patents or utility model registrations to be so important that their expiration or termination would materially affect Toyota’s business.

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Set forth below is information with respect to Toyota’s material plans to construct, expand or improve its facilities between April 2021 and March 2022, presented on a “by subsidiary” basis and as reported in Toyota’s annual Japanese securities report filed with the director of the Kanto Local Finance Bureau.

Set forth below is additional information with respect to Toyota’s material plans to construct, expand or improve its facilities.

In Mexico, Toyota established a new plant (TMMGT) with annual capacity of 100 thousand units in Guanajuato, which started operations in December 2019. In the United States, Toyota will establish a new joint-manufacturing plant with Mazda in 2021. Toyota also plans to start new production lines of hybrid transaxles with annual capacity of 240,000 units in its West Virginia plant during 2020 and 2021. In Alabama, Toyota will increase annual engine production capacity by 230,000 units by the end of 2021.

Toyota does not collect information on the amount of expenditures already paid for each plant under construction because Toyota believes that it is difficult and it would require unreasonable effort or expense to identify and categorize each expenditure item with reasonable accuracy as past and future expenditures. Toyota’s construction projects consist of numerous expenditures, each of which is continually being adjusted and incurred in variable and constantly changing amounts as part of the overall work-in-progress.

Seasonality

Toyota does not consider its seasonality material in the sense of significantly higher sales during any certain period of the year as compared to other periods of the year.

additional periodic reporting requirements. The U.S. District Court for the Southern District of New York approved the consent decree on April 2, 2021.

In April 2020, Toyota reported possible anti-bribery violations related to a Thai subsidiary to the SEC and the DOJ, and is cooperating with their investigations. Investigations by governmental authorities related to these matters could result in the imposition of civil or criminal penalties, fines or other sanctions, or litigation. Toyota cannot predict the scope, duration or outcome of these matters at this time.

Toyota also has various other pending legal actions and claims, including without limitation personal injury and wrongful death lawsuits and claims in the United States, and is subject to government investigations from time to time.

Beyond the amounts accrued with respect to all aforementioned matters, Toyota is unable to estimate a range of reasonably possible loss, if any, for the pending legal matters because (i) many of the proceedings are in evidence gathering stages, (ii) significant factual issues need to be resolved, (iii) the legal theory or nature of the claims is unclear, (iv) the outcome of future motions or appeals is unknown and/or (v) the outcomes of other matters of these types vary widely and do not appear sufficiently similar to offer meaningful guidance. Therefore, for all of the aforementioned matters, which Toyota is in discussions to resolve, any losses that are beyond the amounts accrued could have an adverse effect on Toyota’s financial position, results of operations or cash flows.

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4.D PROPERTY, PLANTS AND EQUIPMENT

As of March 31, 2021, Toyota and its affiliated companies produced automobiles and related components through more than 50 overseas manufacturing organizations in 27 countries and regions besides Japan. The facilities are located principally in Japan, the United States, Canada, the United Kingdom, France, Turkey, Czech Republic, Russia, Poland, Thailand, China, Taiwan, India, Indonesia, South Africa, Argentina and Brazil.

In addition to its manufacturing facilities, Toyota’s properties include sales offices and other sales facilities in major cities, repair service facilities and research and development facilities.

The following table sets forth information, as of March 31, 2021, with respect to Toyota’s principal facilities and organizations, all of which are owned by Toyota Motor Corporation or its subsidiaries. However, small portions, all under approximately 20%, of some facilities are on leased premises.

Toyota is constantly engaged in upgrading, modernizing and revamping the operations of its manufacturing facilities based on its assessment of market needs and prospects. To respond flexibly to fluctuations in demand in each of its production operations throughout the world, Toyota continually reviews and implements appropriate

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production measures such as revising takt time and adjusting days of operation. As a result, Toyota believes it would require unreasonable effort to track the exact productive capacity and the extent of utilization of each of its manufacturing facilities with a reasonable degree of accuracy.

As of March 31, 2021, property, plant and equipment having a net book value of approximately ¥754.1 billion was pledged as collateral securing indebtedness incurred by Toyota Motor Corporation’s consolidated subsidiaries. Toyota believes that there does not exist any material environmental issues that may affect the company’s utilization of its assets.

Toyota considers all its principal manufacturing facilities and other significant properties to be in good condition and adequate to meet the needs of its operations.

See “— Business Overview — Capital Expenditures and Divestitures” for a description of Toyota’s material plans to construct, expand or improve facilities.

The following table sets forth Toyota’s consolidated vehicle unit sales by geographic market based on location of customers for the past two fiscal years.

During fiscal 2021, Toyota’s consolidated vehicle unit sales in Japan decreased due to weak market conditions as compared to the prior fiscal year. During fiscal 2021, overseas vehicle unit sales decreased, particularly in North America, Asia and Other, where the contraction of automotive markets was especially pronounced.

Toyota’s share of total vehicle unit sales in each market is influenced by the quality, safety, reliability, price, design, performance, economy and utility of Toyota’s vehicles compared with those offered by other manufacturers. The timely introduction of new or redesigned vehicles is also an important factor in satisfying customer needs. Toyota’s ability to satisfy changing customer preferences can affect its revenues and earnings significantly.

The profitability of Toyota’s automotive operations is affected by many factors. These factors include:

Changes in laws, regulations, policies and other governmental actions can also materially impact the profitability of Toyota’s automotive operations. These laws, regulations and policies include those attributed to environmental matters, vehicle safety, fuel economy and emissions that can add significantly to the cost of vehicles.

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Many governments also impose local content requirements, impose tariffs and other trade barriers, and enact price or exchange controls that can limit an automaker’s operations and can make the repatriation of profits unpredictable. Changes in these laws, regulations, policies and other governmental actions may affect the production, licensing, distribution or sale of Toyota’s products, cost of products or applicable tax rates. From time-to-time when potential safety problems arise, Toyota issues vehicle recalls and takes other safety measures including safety campaigns relating to its vehicles. The recalls and other safety measures described above have led to a number of claims and lawsuits against Toyota. For a more detailed description of these claims and lawsuits, see “Information on the Company — Business Overview — Legal Proceedings” and note 25 to the consolidated financial statements.

The worldwide automotive industry is in a period of global competition which may continue for the foreseeable future, and in general the competitive environment in which Toyota operates is likely to intensify. Toyota believes it has the resources, strategies and technologies in place to compete effectively in the industry as an independent company for the foreseeable future.

Financial Services Operations

The competition in the worldwide automobile financial services industry is intensifying. As competition increases, margins on financing transactions may decrease and market share may also decline as customers obtain financing for Toyota vehicles from alternative sources.

Toyota’s financial services operations mainly include loans and leasing programs for customers and dealers. Toyota believes that its ability to provide financing to its customers is an important value added service. Therefore, Toyota has expanded its network of finance subsidiaries in order to offer financial services in many countries.

Toyota’s competitors for retail financing and retail leasing include commercial banks, credit unions and other finance companies. Meanwhile, commercial banks and other captive automobile finance companies also compete against Toyota’s wholesale financing activities.

Toyota’s total receivables related to financial services increased during fiscal 2021 mainly due to the impact of changes in exchange rates. Also, vehicles and equipment on operating leases increased during fiscal 2021 mainly due to the impact of changes in exchange rates.

For a detail on receivables related to financial services and vehicles and equipment on operating leases, see notes 9 and 13 to the consolidated financial statements.

Toyota’s receivables related to financial services are subject to collectability risks. These risks include consumer and dealer insolvencies and insufficient collateral values (less costs to sell) to realize the full carrying values of these receivables. See notes 4 and 20 to the consolidated financial statements for additional information.

Toyota continues to originate leases to finance new Toyota vehicles. These leasing activities are subject to residual value risk. Residual value losses could be incurred when the lessee of a vehicle does not exercise the option to purchase the vehicle at the end of the lease term. See note 3 to the consolidated financial statements for additional information.

Toyota enters into interest rate swap agreements and cross currency interest rate swap agreements to convert its fixed-rate debt to variable-rate functional currency debt. A portion of the derivative instruments are entered into to hedge interest rate risk from an economic perspective and are not designated as a hedge of specific assets or liabilities on Toyota’s consolidated statement of financial position and accordingly, unrealized gains or losses related to derivatives that are not designated as a hedge are recognized currently in operations. See discussion in “Quantitative and Qualitative Disclosures about Market Risk” and notes 21 and 22 to the consolidated financial statements.

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The fluctuations in funding costs can affect the profitability of Toyota’s financial services operations. Funding costs are affected by a number of factors, some of which are not in Toyota’s control. These factors include general economic conditions, prevailing interest rates and Toyota’s financial strength. Funding costs increased during fiscal 2020 mainly as a result of higher interest rates. Funding costs decreased during fiscal 2021 mainly as a result of lower interest rates.

Toyota launched its credit card business in Japan in April 2001. As of March 31, 2020, Toyota had 15.9 million cardholders, an increase of 0.1 million cardholders compared with March 31, 2019. As of March 31, 2021, Toyota had 16.4 million cardholders, an increase of 0.5 million cardholders compared with March 31, 2020. Credit card receivables as of March 31, 2020 increased by ¥6.1 billion from March 31, 2019 to ¥481.7 billion, and that as of March 31, 2021 increased by ¥2.4 billion from March 31, 2020 to ¥484.1 billion.

Other Business Operations

Toyota’s other business operations consist of information technology related businesses (including information technology and telecommunications and GAZOO), housing (including the manufacture and sale of prefabricated homes) and other businesses. During fiscal 2020, TMC and Panasonic Corporation (“Panasonic”) established a new joint venture, Prime Life Technologies Corporation (“Prime Life Technologies”), relating to the town development business. Prime Life Technologies became Toyota’s affiliated company, and Toyota Housing Corporation (“THC”) as well as Misawa Homes Co., Ltd. (“Misawa Homes”) became subsidiaries of Prime Life Technologies, causing THC and Misawa Homes to no longer be Toyota’s consolidated subsidiary companies. See note 6 to the consolidated financial statements for additional information.

Toyota does not expect its other business operations to materially contribute to Toyota’s consolidated results of operations.

Currency Fluctuations

Toyota is affected by fluctuations in foreign currency exchange rates. Toyota is exposed to fluctuations in the value of the Japanese yen against the U.S. dollar and the euro as well as the Australian dollar, the Russian ruble, the Canadian dollar, the British pound and others. Toyota’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange fluctuations through both translation risk and transaction risk.

Translation risk is the risk that Toyota’s consolidated financial statements for a particular period or for a particular date will be affected by changes in the prevailing exchange rates of the currencies in those countries in which Toyota does business compared with the Japanese yen. Even though the fluctuations of currency exchange rates to the Japanese yen can be substantial, and, therefore, significantly impact comparisons with prior periods and among the various geographic markets, the translation risk is a reporting consideration and does not reflect Toyota’s underlying results of operations. Toyota does not hedge against translation risk.

Transaction risk is the risk that the currency structure of Toyota’s costs and liabilities will deviate from the currency structure of sales proceeds and assets. Transaction risk relates primarily to sales proceeds from Toyota’s non-domestic operations from vehicles produced in Japan.

Toyota believes that the location of its production facilities in different parts of the world has significantly reduced the level of transaction risk. As part of its globalization strategy, Toyota has continued to localize production by constructing production facilities in the major markets in which it sells its vehicles. In fiscal 2020 and 2021, Toyota produced 69.0% and 69.7%, respectively, of its non-domestic sales outside Japan. In North America, 67.6% and 65.3% of vehicles sold in fiscal 2020 and 2021, respectively, were produced locally. In Europe, 74.4% and 71.9% of vehicles sold in fiscal 2020 and 2021, respectively, were produced locally. Localizing production enables Toyota to locally purchase many of the supplies and resources used in the production process, which allows for a better match of local currency revenues with local currency expenses.

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Toyota also enters into foreign currency transactions and other hedging instruments to address a portion of its transaction risk. This has reduced, but not eliminated, the effects of foreign currency exchange rate fluctuations, which in some years can be significant. See notes 21 and 22 to the consolidated financial statements for additional information.

Generally, a weakening of the Japanese yen against other currencies has a positive effect on Toyota’s revenues, operating income and net income attributable to Toyota Motor Corporation. A strengthening of the Japanese yen against other currencies has the opposite effect. In fiscal 2020 and 2021, the Japanese yen was on average stronger against the U.S. dollar in comparison to fiscal 2019 and 2020, respectively. The Japanese yen was at the end of fiscal 2020 stronger against the U.S. dollar in comparison to the end of fiscal 2019, but was at the end of fiscal 2021 weaker against the U.S. dollar in comparison to the end of fiscal 2020. In fiscal 2020, the Japanese yen was on average stronger against the euro in comparison to the previous fiscal year, but in fiscal 2021, was on average weaker against the euro in comparison to the previous fiscal year. The Japanese yen was at the end of fiscal 2020 stronger against the euro in comparison to the end of fiscal 2019, but was at the end of fiscal 2021 weaker against the euro in comparison to the end of fiscal 2020. See note 20 to the consolidated financial statements for additional information.

Segmentation

Toyota’s most significant business segment is its automotive operations. Toyota carries out its automotive operations as a global competitor in the worldwide automotive market. Management allocates resources to, and assesses the performance of, its automotive operations as a single business segment on a worldwide basis and assesses financial and non-financial data such as vehicle unit sales, production volume, market share information, vehicle model plans and plant location costs to allocate resources within the automotive operations. Toyota does not manage any subset of its automotive operations, such as domestic or overseas operations or parts, as separate management units.

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