Autoliv (ALV) Risk Analysis

Government vehicle safety regulations are a key driver in our business. Historically, these regulations have imposed increasingly stringent safety requirements for vehicles. Such regulations have a positive impact on driver awareness and acceptance of automotive safety products and technology. More stringent safety regulations often require vehicles to include more safety CPV and more advanced safety products, which has been a driver of growth in our business. However, these regulations are subject to change based on a number of factors outside our control, including new scientific or medical data, adverse publicity regarding the industry recalls and safety risks associated with airbags or seatbelts (for example, risks to children and small adults), domestic and foreign political developments or considerations, and litigation relating to our products and our competitors' products. Changes in government regulations in response to these and other factors could have a severe impact on our business. Although we believe that safety will continue to be a regulatory priority over time, if government priorities shift and we are unable to adapt to changing regulations, our business may suffer material adverse effects. Our regulatory obligations could increase as federal and local regulators impose more stringent compliance and reporting requirements in response to product recalls and safety issues in our industry. We are subject to existing stringent requirements under the National Traffic and Motor Vehicle Safety Act of 1966 (the "Vehicle Safety Act"), including a duty to report safety defects with our products, subject to strict timing requirements. The Vehicle Safety Act imposes potentially significant civil penalties for violations, including the failure to comply with such reporting obligations. We are also subject to the existing U.S. Transportation Recall Enhancement, Accountability and Documentation ("TREAD") Act, which requires equipment manufacturers, such as Autoliv, to comply with "Early Warning" reporting requirements by providing NHTSA with certain information, including information related to defects or reports of injury related to our products. The TREAD Act imposes criminal liability for violations if a defect subsequently causes death or bodily injury. In addition, the Vehicle Safety Act authorizes NHTSA to require a manufacturer to recall and repair vehicles that contain safety defects or fail to comply with U.S. federal motor vehicle safety standards. Sales into foreign countries may be subject to similar regulations. Due to the record recall of airbag inflators of one of our competitors, NHTSA has become more active in requesting information from suppliers and vehicle manufactures regarding potential product defects.

We have previously been the subject of an investigation by the European Commission ("EC") regarding possible anti-competitive behavior among certain suppliers to the automotive vehicle industry that was resolved in 2019. We are subject to a civil antitrust lawsuit in Germany filed by a customer with respect to allegations over a decade ago and may be subject to such civil antitrust lawsuits in the future in countries that permit such civil claims, including lawsuits or other actions by our customers. These types of lawsuits require significant management time and attention and could result in significant expenses. Any unfavorable outcomes of such lawsuits could have a material adverse impact on our customer relationships, business prospects, reputation, operating results, cash flows, and financial condition, and our insurance may not mitigate such impact. See Note 19, Contingent Liabilities, to the Consolidated Financial Statements in this Annual Report.

We currently carry deferred tax assets, net of valuation allowances, resulting from deductible temporary differences and tax loss carry-forwards, both of which will reduce taxable income in the future. However, deferred tax assets may only be realized against taxable income. The amount of our deferred tax assets could be reduced, from time to time, due to adverse changes in our operations or in estimates of future taxable income from operations during the carry-forward period as a result of a deterioration in market conditions or other circumstances. Any such reduction would adversely affect our income in the period of the adjustment. Additional information on our deferred tax assets is included in Note 5, Income Taxes, to the Consolidated Financial Statements in this Annual Report.

We face risks related to product liability claims, warranty claims, and recalls if any of our products are, or are alleged to be defective, fail to perform as expected, or result, or are alleged to result, in bodily injury and/or property damage. We may not be able to anticipate all potential performance or reliability issues that could arise after our products are released to the market. Additionally, increasing regulations and reporting requirements regarding potentially defective products, particularly in the U.S., may increase the possibility that we become involved in additional product liability or recall investigations or claims. See "–Risks Related to Government Regulations and Taxes–Our business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market". Although we currently carry product liability and product recall insurance in excess of our self-insured amounts, there can be no assurance that such insurance will provide adequate coverage against potential claims, that such insurance will be available or continue to be available in the appropriate markets, or that we will be able to obtain such insurance on acceptable terms in the future. The cost of this insurance has risen in recent years and our self-insured amounts have increased as well. Although we have invested and will continue to invest in our engineering, design, and quality infrastructure, we cannot give any assurance that our products will be free suffer from defects or other deficiencies or that we will not experience material warranty claims or product recalls. In the future, we could incur material warranty or product liability losses and significant costs to process and defend these claims. A successful claim brought against us in excess of available insurance coverage, if any, or a requirement to participate in any product recall, could have a material adverse effect on our operating results, cash flows, and financial condition. Future recalls could result in costs not covered by insurance in excess of our self-insurance amounts, additional government inquiries, litigation, reputational harm, and diversion of management's attention. The main variables affecting recall costs include: the number of vehicles ultimately determined to be affected, the cost per vehicle associated with the recall, the determination of proportionate responsibility among the customer, us, and any relevant sub-suppliers, and actual insurance recoveries. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers, and the performance and remedial requirements vary between jurisdictions. Due to recall activity in the automotive industry over the past decade, some vehicle manufacturers have become increasingly sensitive to recall risks. Government regulators have also become more focused on potential recall risks and recall rates, as demonstrated by the U.S. National Highway Traffic Safety Administration's ("NHTSA") investigation of the ARC inflators. If NHTSA proceeds with any recalls of ARC inflators, such a recall could have a material impact on our business, operating results, and financial condition. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. Product recalls in our industry, even when they do not involve our products, can harm the reputations of our customers, competitors, and us, particularly if those recalls cause consumers to question the safety or reliability of products similar to ours. In addition, with global platforms and procedures, vehicle manufacturers are increasingly evaluating our quality performance on a global basis; any one or more quality, warranty or other recall issue(s) (including issues affecting few units and/or having a small financial impact) may cause a vehicle manufacturer to implement measures that may have a severe impact on our operations, such as a global, temporary or prolonged suspension of new orders. In addition, as our products more frequently use global designs and are based on or utilize the same or similar parts, components or solutions, there is a risk that the number of vehicles affected globally by a failure or defect will increase significantly with a corresponding increase in our costs. A warranty, recall or product liability claim brought against us in excess of available insurance may have a material adverse effect on our business. Vehicle manufacturers are also increasingly requiring their suppliers to guarantee or warrant their products and bear repair and replacement costs of such products under new vehicle warranties. A vehicle manufacturer may attempt to hold us responsible for some or the entire repair or replacement costs of defective products under new vehicle warranties when the product supplied did not perform as represented. Accordingly, future warranty claims by our customers may be material. However, the final amounts determined to be due could differ materially from our recorded warranty estimates, and our business, operating results, cash flows, and financial condition may be materially impacted as a result. In addition, as we adopt new technologies, we face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights. We cannot assure you that we will not experience any material warranty, product liability or intellectual property claim losses in the future, or that we will not incur significant costs to defend against such claims. See "–Risks Related to Intellectual Property–If our patents are declared invalid or our technology infringes on the proprietary rights of others, our ability to compete may be impaired".

Because the automotive industry relies heavily on "just-in-time" delivery of components during the assembly and manufacture of vehicles, a work stoppage or slow-down at one or more of our facilities could have a material adverse effect on our business. Similarly, if any of our customers were to experience a work stoppage or slow-down, that customer may halt or limit the purchase of our products. Similarly, a work stoppage or slow-down at another supplier could interrupt production at one of our customers' facilities which would have the same effect. Furthermore, geopolitical instability or conflicts could displace workers or trigger the migration of workers, causing labor shortages in critical areas, which could further disrupt operations. Labor shortages could also increase wages as multiple companies and facilities compete for a shrinking pool of workers. While labor contract negotiations at our facilities historically have rarely resulted in work stoppages, no assurances can be given that we will be able to negotiate acceptable contracts with these unions or that our failure to do so will not result in work stoppages. A work stoppage or other labor disruption at one or more of our facilities or our customers' facilities could cause us to shut down production facilities supplying these products, which could have a material adverse effect on our business, operating results, and financial condition.

Our business uses a broad range of raw materials and components in the manufacture of our products, nearly all of which are generally available from a number of qualified suppliers. Our industry may be affected from time to time by limited supplies or price fluctuations of certain key components and materials. Strong worldwide demand for certain raw materials has had a significant impact on prices and short-term availability in recent years. Such price increases have materially increased, and could continue to materially increase, our operating costs and materially and adversely affect our profit margins, as direct material costs amounted to approximately 54% of our net sales in 2025, of which approximately half represents raw material costs. Commercial negotiations with our customers and suppliers may not always offset all of the adverse impact of higher raw material, energy, labor, logistics, and commodity costs, including those resulting from tariffs and trade restrictions (including retaliatory tariffs). These negotiations may also not be successful in the future. Even where we are able to pass price increases on to our customers, there may be (i) a delay before we can do so, requiring us to absorb the cost increase in the interim, and (ii) a negative impact on our relationships with such customers and suppliers, which may limit our ability to secure future awards from customers and or obtain acceptable supplies from suppliers. In addition, no assurance can be given that the magnitude or duration of current or future cost increases will not have a larger adverse impact on our profitability or consolidated financial position than currently anticipated. Furthermore, if raw material costs decrease, the price for our products may also decrease, as such prices are often indexed to the raw material costs. Additionally, various government regulators require companies that manufacture products containing certain minerals and their derivatives that are known as "conflict minerals", originating from the Democratic Republic of Congo or adjoining countries to perform due diligence and report the source of such materials. There are significant resources associated with complying with these requirements, including diligence efforts to determine the sources of conflict minerals used in our products and potential changes to our processes or supplies as a consequence of such diligence efforts. As there may be only a limited number of suppliers able to offer certified "conflict free" conflict minerals, there can be no assurance that we will be able to obtain necessary conflict free minerals from such suppliers in sufficient quantities or at competitive prices. We may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all minerals used in our products through the procedures we may implement. Furthermore, our customers are increasingly requiring us to track sustainable sources of certain raw materials, which also requires additional diligence efforts and there can be no assurance that we will be able to obtain these materials in a cost-efficient and sustainable manner. Accordingly, these rules and customer requirements may adversely affect our business, operating results, cash flows, and financial condition.

The market for passive safety systems is highly competitive, and we face competition from a number of other companies that produce and sell similar products. Among other factors, our products compete on the basis of price, quality, manufacturing and distribution capability, design and performance, technological innovation, delivery, and service. Some of our competitors are subsidiaries (or divisions, units or similar) of larger companies with greater financial and other resources than us. Some of our competitors may also have "preferred status" as a result of special relationships or ownership interests with certain customers. Our ability to compete successfully depends, in large part, on our success in continuing to innovate and manufacture products that have commercial success with our customer and end-consumers, differentiating our products from those of our competitors, continuing to deliver quality products in the time frames required by our customers, and maintaining best-cost production. We continue to invest in technology and innovation, which we believe are critical to our long-term growth. Our ability to maintain and improve existing products, while successfully developing and introducing distinctive new and enhanced products that anticipate changing customer and consumer preferences and capitalize upon emerging technologies will be a significant factor in our ability to remain competitive. We may not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services. In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, may have unintended consequences due to any limitations or failure to use them effectively. If we are unsuccessful or are less successful than our competitors in predicting the course of market development, developing innovative products, processes, and/or use of materials or adapting to new technologies or evolving regulatory, industry or customer requirements, we may be placed at a competitive disadvantage. Given the competitive nature of our business, the number of awards we are awarded relative to our peers may decrease over time and our past order intake is not an indicator of future levels or order intake. Additionally, OEMs rigorously evaluate our products and performance against competitors on the basis of quality, reliability, cost-effectiveness, and the overall competitive landscape. If any OEM customer determines that using a competitor's product would yield better financial results or would help maintain supply chain resilience, it may result in loss in business and could affect our ability to be competitive and may decrease our current market share. The inability to compete successfully could have a material adverse effect on our business, operating results, and financial condition.

We are dependent on a few large customers with strong purchasing power. This is the result of customer consolidation in the last few decades. In 2025, our top five customers represented around 44% of our consolidated sales, and our largest customer contract accounted for around 2% of our consolidated sales. Although business with any given customer is typically split into several contracts (either on the basis of one contract per vehicle model or on a broader platform basis), the loss of business from any of our major customers (whether by lower overall demand for vehicles, cancellation of existing contracts or the failure to award us new business) could have a material adverse effect on our business, operating results, and financial condition. Additionally, supply chain disruptions experienced by our customers could result in, among others, decreased demand and production or aggressive renegotiation of supplier contracts, all of which could have a material adverse effect on our business, operating results, and financial condition. Similarly, further consolidation of our customers in the future could make us more reliant upon a smaller group of customers for a significant portion of our consolidated sales and negatively impact our bargaining power when contracting with such customers. Customers may put us on a "new business hold," which would limit our ability to quote or be awarded all or part of their future vehicle contracts if quality or other issues arise in the vehicles for which we were a supplier. This could have a significant negative impact on our order intake. Such new business holds range in length and scope and are generally accompanied by a certain set of remedial conditions that must be met before we are eligible to bid for new business. Meeting any such conditions within the prescribed timeframe may require additional Company resources. A failure to satisfy any such conditions may have a material adverse impact on our operating results and financial condition in the long term. There is a risk that one or more of our major customers may be unable to pay our invoices as they become due or that a customer will simply refuse to make such payments given its financial difficulties. If a major customer enters into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, or if a major customer otherwise successfully procures protection against us legally enforcing its obligations, it is likely, absent special relief such as having a "preferred status", that we will be forced to record a substantial loss. Additional information concerning our major customers is included in Note 21, Segment Information, to the Consolidated Financial Statements in this Annual Report.

We sell products that have varying profit margins. Our financial performance can be impacted depending on the mix of products we sell during a given period. Our earnings guidance, estimates, and financial targets assume a certain product sales mix as well as a geographic sales mix as many of the growth markets have a lower CPV. If actual results vary significantly from this projected product and geographic mix of sales, our operating results and financial condition could be negatively impacted.

Our ability to generate cash from our operations is highly dependent on automotive sales and LVP, the global economy, and the economies of our important markets. If LVP were to remain on low levels for an extended period of time, we would experience a significantly negative cash flow. Similarly, if cash losses resulting from customer defaults were to rise sharply, we would experience negative cash flow. Such negative cash flow could result in our having insufficient funds to continue our operations unless we can procure external financing, which may not be possible. Our access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors. Our ability to obtain unsecured funding at a reasonable cost is dependent on our credit ratings or our perceived creditworthiness. Our current credit rating could be lowered as a result of us experiencing significant negative cash flows, increasing our indebtedness and leverage, or a dire financial outlook, which may affect our ability to procure financing. We may also for the same, or other reasons, find it difficult to secure new long-term credit facilities, at reasonable terms, when our principal credit facility expires in 2029. Further, even our existing unutilized credit facilities may not be available to us as agreed, or only at additional cost, if participating banks are unable to raise the necessary funds, where, for instance, financial markets are not functioning as expected or one or more banks in our principal credit facility syndicate were to default. As a result, we cannot assure you that we will continue to have sufficient liquidity to meet our operating needs. In the event that we do not have sufficient external financing, we may be required to seek additional capital, sell assets, reduce or cut back our operating activities or otherwise alter our business strategy. Information concerning our credit facilities and other financings is included in Item 7 in this Annual Report in the section headed "Treasury Activities" and in Note 15, Debt and Credit Agreements, to the Consolidated Financial Statements in this Annual Report.

The U.S., Mexico and Canada entered into the USMCA, a successor to the North American Free Trade Agreement, effective as of July 1, 2020. The USMCA changed the automotive rules of origin that dictate what percentage of an automobile must be built from parts that originated from countries in the USMCA territory. The rules require that at least 75% of parts be made in North America and that 40-45% of an automobile must be made by workers earning at least $16 an hour. Reflective of the automotive industry, our vehicle parts manufacturing facilities in the U.S., Mexico and Canada are highly dependent on duty-free trade amongst the U.S., Mexico, and Canada. The criticality of USMCA eligibility of products involved in such trade has increased significantly as a result of the exemption such eligibility currently affords from additional tariffs imposed against Canada and Mexico by executive orders in 2025. The USMCA is undergoing a joint review in 2026. If the USMCA is terminated, or otherwise substantially amended, it could have a material adverse impact on our financial performance. The imposition of customs duties on imports into the U.S., Mexico, or Canada could negatively impact our financial performance.

The extent to which we pay dividends on our common stock and repurchase our common stock in the future is at the discretion of our Board of Directors and depends upon a number of factors, including our earnings, financial condition, cash and capital needs, indebtedness and leverage, and general economic or business conditions. No assurance can be given that we will be able to or will choose to pay any dividends or repurchase any shares in the foreseeable future.

Our restructuring, efficiency, strategic initiatives and capacity alignments include efforts to adjust our manufacturing capacity, direct and indirect labor workforce, and cost structure to meet current and projected operational and market requirements. These efforts include plant closures, transferring sourcing to best-cost countries, consolidating our supplier base, and standardizing products to reduce overhead costs and consolidate our operational centers. The successful implementation of our restructuring activities and capacity alignments involves sourcing, logistics, technology, and employment arrangements. Because these restructuring, efficiency, and strategic initiatives and capacity alignments can be complex, difficulties or delays in implementation may occur, or the initiatives and capacity alignments may not be immediately effective, resulting in an adverse material impact on our performance. In addition, there is a risk that inflation, high turnover rates, and increased competition may reduce the efficiencies currently available in best-cost countries to levels that no longer allow for cost-beneficial restructuring opportunities. Therefore, there can be no assurances that any future restructurings or capacity alignments will be completed as planned or will achieve the desired results. See Note 13, Restructuring, to the Consolidated Financial Statements in this Annual Report.