Working Toward the Mobility Society of the Future

Message from the President The Source of Our Value Creation: What Makes Us Toyota Value Creation Story: Working toward the Mobility Business Foundations Corporate Data for Value Creation Society of the Future Message from the CSO > Roundtable Discussion with the Outside Directors > Dialogue with Institutional Investors on Corporate Governance > Corporate Governance Message from the CFO > Capital Strategy > The Environment > Vehicle Safety > Quality and Information Security > Intellectual Property and Privacy > Value Chain Collaboration Human Rights Diversity and Inclusion > Human Resource Development > Health and Safety and Social Contribution Activities > Risk Management and Compliance Impact on Strategy Recognition Specific influence Products and services Social trends toward decar- bonization Reflected in fuel efficiency and other regulations in many countries Greatly affecting product development and production Supply chains/value chains The business of manufacture and sale of automobiles emits large amounts of CO2 and other greenhouse gases from its product production and the entire value chain. The following strategies were influenced: • Long-term strategy (2050 Target): Toyota Environmental Challenge 2050 announced in 2015 • Medium-term strategy (2030 Target): 2030 Milestone announced in 2017 • Short-term strategy (2025 Target): 7th Toyota Environmental Action Plan announced in 2020 In each of the above strate- gies, the numerical target for CO2 emissions reduction was set as part of the New Vehicle Zero CO2 Emissions Challenge. • In each of the above strategies, the numerical target for CO2 emissions reduction in the entire value chain was set as part of the Life Cycle Zero CO2 Emissions Challenge. In 2021, the decision to aim for sales of 3.5 million battery. electric vehicles (BEVS) in 2030 was announced. • The medium-term strategy takes into account the following: • Manufacturing and disposal of batteries for the manufacture of electrified vehicles Collaboration with suppliers Risks and opportunities related to recycling c) Resilience of the Organization's Strategy, Taking into Consideration Different Climate-related Scenarios, including a 2°C or Lower Scenario STEP 1 Set Future Storylines Assuming Climate Change Effects Climate change and the policies of various coun- tries may expose the automobile industry and mobility society as a whole to substantial chang- es. These changes will present both risks and opportunities for Toyota. Based on risk and opportunity analysis, using such scenarios*1 as those of the International Energy Agency (IEA), we envisioned three future storylines of society and the external environment in around 2030: the stat- ed policies future storyline, 2°C future storyline, and 1.5°C or less future storyline. *1 Set with reference to such scenarios as the IPCC's Representative Concentration Pathways (RCP) 4.5 equivalent, IEA's Stated Policies Scenario (STEPS), Sustainable Development Scenario (SDS), and Net Zero Emissions by 2050 Scenario (NZE) STEP 2 Investments in R&D • Toyota's acceleration of R&D to respond to tightened regulations and changes in consumer needs caused by climate change has led to: Promotion of the R&D of electri- fied vehicles Increased R&D expenditures In each of the above strategies, the sales target for electrified vehi- cles was set as part of the New Vehicle Zero CO2 Emissions Challenge. In 2021, the decision to aim for sales of 3.5 million BEVS in 2030 was announced. R&D expenditures are required to achieve this target. Consider the Impacts on Toyota In a society of the below 2°C future storyline or the 1.5°C or less future storyline, in which climate change measures make steady progress, the percentage of vehicles that are electrified (especially ZEVS*2) will increase. In the society of the 1.5°C or less future storyline in particular, the percentage of ZEVS among new vehicle sales will likely increase greatly while the use of carbon-neutral fuels*3 will also expand. With regard to effects on production and purchasing, since the introduction of carbon taxes and increased tax rates may lead to higher costs, expanding the use of energy-saving technology, renewable energy, and hydrogen will mitigate risks. On the other hand, if adequate climate change measures are not implemented throughout soci- ety, as described in the stated policies future sto- ryline, production suspensions due to the increased frequency and severity of natural disas- ters, such as flooding, as well as production decreases and suspensions due to supply chain disruptions are likely to increase. *2 ZEV: Zero emission vehicles. Vehicles that have the potential to emit no CO2 or NOx during driving, such as BEVS and FCEVS *3 Carbon-neutral fuels: Next-generation biofuels and synthetic fuels Adaptation activities and mitigation Activities Automobile manufacturing, Toyota's main busi- ness, entails a large amount of emissions of CO2 and other greenhouse gases from each process. Influences of social trends toward decarbonization Payment of carbon taxes Emissions trading through carbon pricing Costs of use of renewable energy and hydrogen •In each of the above strategies, the numerical tar- get for CO2 emissions reduction related to plant operations was set as part of the Plant Zero CO2 Emissions Challenge. In 2021, the decision to aim for carbon neutrality at plants by 2035 was announced. STEP 3 Toyota's Strategies In April 2021, Toyota proclaimed that it would address global-scale challenges to achieve car- bon neutrality by 2050. As an initiative to this end, we have been working on environmental technol- ogy development for electrified vehicles, such as hybrid electric vehicles (HEVS), plug-in hybrid vehi- cles (PHEVS), battery EVS (BEVS), and fuel cell vehicles (FCEVS). We believe environmental tech- nologies can contribute to reduction of CO2 emis- sions only when they are widely disseminated. Toyota currently conducts sales in over 170 countries and regions, among which economic conditions, energy and industrial policies, and customer needs vary significantly. Therefore, it is important to have a strategy that offers a variety of electrified vehicle options to optimally meet the diverse needs of each country and region. Based on this electrified vehicle strategy, Toyota has sold a cumulative total of over 20 million elec- trified vehicles worldwide. As one of the first com- panies to respond to climate change risks, Toyota has achieved a CO2 emissions reduction of over 160 million tons through these vehicles (as of March, 2022). Going forward, with regard to BEVS, we will successively introduce models based on a dedi- cated platform in 2022 and seek to supply practi- cal vehicles through battery development and production strategies. In December 2021, we announced our aim of developing 30 types of BEVS and achieving a full lineup in the passenger and commercial segments globally by 2030, with the target of 3.5 million annual global vehicle sales by 2030. To achieve this, we will advance the sale of electrified vehicles optimized to fit regional con- ditions and customer preferences. In addition to BEVS, we are promoting electrifi- cation from all directions. We will flexibly and stra- tegically adapt total vehicle sales and other conditions in response to changes in the market while leveraging the strengths that we have gained through experience. This will encourage customers in each region to choose us and accel- erate the increased use of electrified vehicles. Even if battery demand increases in accordance Iwith shifts in customer needs, as in the 2°C or 1.5°C or less future storyline, we will flexibly work toward carbon neutrality by such means as enhancing collaboration with existing and new partners and swiftly establishing production struc- tures at suppliers that have capital ties with Toyota. In addition to increasing the number of electri- fied vehicles, Toyota is working on CO2-reducing off-cycle technology*4 (items not necessarily reflected in driving mode fuel efficiency). Carbon- neutral fuel technologies, such as hydrogen fuel and hydrogen engine vehicles, will also contribute to reducing the CO2 emissions of vehicles, includ- ing vehicles currently in use. We are therefore working to expand options for such technologies. *4 Off-cycle technology: Technologies such as high efficiency light- ing, waste heat recovery, active aerodynamic improvement, and solar radiation/temperature management that improve actual fuel consumption. The United States has a system of offering credits in proportion to the amount of improvement achieved. Achieving Carbon Neutrality To achieve carbon neutrality in the automotive industry, it is vital that energy policies (renewable energy, charging infrastructure, etc.) and industrial TOYOTA MOTOR CORPORATION 41 INTEGRATED REPORT