Visteon (VC) Risk Analysis

The Company faces the inherent business risk of exposure to warranty and product liability claims in the event that its products fail to perform as expected or such failure results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of the Company's supplied products are defective or are alleged to be defective, the Company may be required to participate in or fund a recall campaign. The introduction of new and complex technologies, such as A.I. features, can increase these and other safety risks, including exposing users to harmful, inaccurate or other negative content and experiences. The Company's products contain increasingly significant amounts of software and a successful cyberattack on such products could cause materially adverse effects on the Company's business, operating results, financial condition, cash flow, and reputation. In addition, as the Company expands its electrification product offering, including its battery management systems, such products will present a different warranty and product liability risk profile. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, automakers are increasingly expecting them to warrant their products and are increasingly looking to suppliers for contributions when faced with product liability claims or recalls. A successful warranty or product liability claim against the Company, or a requirement that the Company participate in a product recall campaign, could have materially adverse effects on the Company's business, operating results, financial condition, and cash flow.

In an effort to manage and reduce the costs of purchased goods and services, the Company, like many automotive suppliers and automakers, has been consolidating its supply base. As a result, the Company is dependent on single or limited sources of supply for certain components used in the manufacture of its products including semiconductor chips, which are integral components of new vehicles and are embedded in multiple vehicle systems, including cockpit electronics. As a result of the semiconductor shortages in recent years including the developing DRAM shortages, the Company continues to work closely with its suppliers and customers to minimize any potential adverse impacts of the semiconductor and DRAM supply shortages and monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules, and any other supply chain inefficiencies that may arise, due to this or any other issue. If shortages of semiconductors (including DRAM) or other critical components from other suppliers develop, continue longer than anticipated, or worsen, it could impact the Company's ability to meet its production schedules for some of its key products or to ship such products to its customers in a timely fashion. Shortages of critical components, including semiconductors and DRAM, also result in increased prices and price volatility for such components and while the Company seeks to recover these increased costs from its customers failure to secure full reimbursement could negatively impact the Company's financial performance. Supply disruptions could be caused by any one of a myriad of potential problems, such as closures of one of the Company's or its suppliers' plants or critical manufacturing lines due to strikes, manufacturing quality issues, mechanical breakdowns, electrical outages, fires, explosions, or political upheaval, as well as logistical complications due to weather, global climate change, volcanic eruptions, or other natural or nuclear disasters, mechanical failures, delayed customs processing, the spread of an infectious disease, virus or other widespread illness and more. Additionally, as the Company grows in best cost countries, the risk for such disruptions is heightened. Similarly, a potential quality issue could force the Company to halt deliveries while it validates the products. Even where products are ready to be shipped, or have been shipped, delays may arise before they reach the customer. The Company's customers may halt or delay production if one of their other suppliers fails to deliver necessary components. This may cause the Company's customers to suspend their orders or instruct us to suspend delivery of the Company's products, which may adversely affect the Company's financial performance. If the Company were to fail to make timely deliveries in accordance with contractual obligations, the Company generally must absorb its own costs for identifying and solving the "root cause" problem as well as expeditiously producing replacement components or products. Generally, the Company must also absorb the costs associated with "catching up," such as overtime and premium freight. Additionally, if the Company is the cause for a customer being forced to halt production, the customer may seek to recoup all of its losses and expenses from the Company. Any supply-chain disruption, however small, could cause the complete shutdown of an assembly line of one of the Company's customers, and any such shutdown could lead to material claims for compensation. The Company has experienced and may in the future experience supplier price increases that could negatively affect its operations and profitability. The price increases are often driven by raw material pricing and availability, component or part availability, manufacturing capacity, industry allocations, logistics capacity, natural disasters or pandemics, the effects of climate change, inflation, sudden increases in border tariffs, and significant changes in the financial or business condition of its suppliers

Domestic Chinese suppliers are increasingly seeking to supply customers outside of China and domestic Chinese OEMs such as BYD, Xiomei, and Chery are expanding their sales outside of China including in Europe, South America, and Asia. While the Company is making efforts to compete with the Chinese suppliers and to supply parts to these OEMs, its product content for the Chinese OEMs is less than with more traditional European and North American OEMs. As the domestic Chinese OEMs gain market share outside of China, the Company's sales opportunities may be limited and financial condition and cash flow negatively impacted.

Although the Company has purchase orders from many of its customers, these purchase orders generally provide for the supply of a customer's annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer's requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products. In addition, certain customers have communicated an intent to manufacture components internally that are currently produced by outside suppliers, such as the Company. If the Company's OEM customers successfully insource products currently manufactured by the Company, the discontinuation or loss of business for products which the Company is a significant supplier could reduce the Company's sales and harm the Company's profitability.

The Company is involved in legal proceedings and commercial or contractual disputes that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes (including disputes with suppliers), intellectual property matters, personal injury claims, and employment matters. Adverse results of such proceedings and claims may have a material adverse impact on the Company's profitability and financial position.

We are subject to income taxes in the United States and in numerous foreign jurisdictions, and our tax expense is dependent on the application of complex tax laws and regulations in these jurisdictions. Changes in tax laws or tax rates, the interpretation or enforcement of existing tax laws, or the outcome of audits by tax authorities could adversely affect our effective tax rate, results of operations, and cash flows. Our effective tax rate may fluctuate due to a variety of factors, including changes in the geographic mix of earnings, the availability of tax credits and deductions, changes in applicable tax rates, modifications to tariff or cross-border tax regimes, changes in accounting principles, or unfavorable resolutions of tax examinations. We also maintain deferred tax assets, the realization of which depends on future taxable income and the continued availability of underlying tax attributes. Changes in applicable tax laws or regulations, or changes in our business performance, could affect our ability to realize these deferred tax assets and could result in additional valuation allowances. In the ordinary course of business, we are subject to examination by tax authorities in multiple jurisdictions, and additional audits may be initiated or existing audits expanded. The outcomes of these examinations are uncertain and could result in increases to our tax liabilities. Recent and ongoing legislative developments may also create uncertainty in our future tax position. The enactment of the One Big Beautiful Bill Act (the "Act") in 2025 introduced revisions affecting the utilization of foreign tax credits, requiring us to reassess the realizability of related carryforwards following our change in accounting method for assessing deferred tax assets from an incremental cash-tax-savings approach to the tax-law-ordering approach. This reassessment resulted in the recognition of an additional valuation allowance during 2025. Global tax reform initiatives, including the OECD's implementation of a 15% global minimum tax, continue to evolve, and the timing, scope, and application of these rules to U.S.-based multinational corporations remain uncertain. As jurisdictions adopt and interpret these rules, our effective tax rate, tax liabilities, and cash tax obligations could be adversely affected. For example, the enactment of local Qualified Domestic Minimum Top-Up Taxes (QDMTT) in Brazil and the application of its 15% minimum tax framework in 2025 led us to forego excluding certain tax incentives from the tax base to facilitate the tax-efficient repatriation of earnings from a Brazilian affiliate, which resulted in a higher effective tax rate in that jurisdiction.

Climate-related regulation, disclosure requirements, and stakeholder expectations in the United States and globally continue to evolve and may increase the Company's costs, compliance obligations, and operational risks. Governments at the federal, state, and international levels have adopted, or are considering, laws and regulations addressing greenhouse gas emissions, climate-related disclosures, energy use, and supply-chain transparency. Failure to comply with any legislation or regulation could result in substantial fines, criminal sanctions, or operational changes. Moreover, even without such legislation or regulation, increased awareness of, or any adverse publicity regarding, the effects of greenhouse gases could harm the Company's reputation or reduce customer demand for its products and services. Automakers have also started implementing climate-related initiatives and objectives each year with their suppliers, and such actions are expected to continue in the future. If the Company is unable to meet these new requirements in the future through improved operating efficiencies, new manufacturing processes, sourcing alternatives, and other sustainability initiatives, the Company's business could be adversely affected. Additionally, as severe weather events become increasingly common, operations of the Company, its customers, and/or suppliers may be disrupted, which could result in increased operational costs or reduced demand for products and services. Natural disasters could cause disruption to the Company's ability to serve its customers and communities in times of need and extended periods of disruption could have an adverse effect on its results of operations.

The Company has net operating losses ("NOLs") and other tax attributes which could be limited if there is a subsequent change of ownership. If the Company were to have a change of ownership within the meaning of Internal Revenue Code ("IRC") Sections 382 and 383, its NOLs and other tax attributes could be limited to an amount equal to its market capitalization at the time of the ownership change multiplied by the federal long-term tax exempt-rate. The Company cannot provide any assurance that such an ownership change will not occur, in which case the availability of the Company's NOLs and other tax attributes could be significantly limited or possibly eliminated. Certain tax benefit preservation provisions of its corporate documents could delay or prevent a change of control, even if that change would be beneficial to stockholders.

The Company estimates new business wins using certain assumptions, including projected future sales volumes based on data from OEM customers and industry benchmarks. The OEM customers do not generally guarantee production volumes. In addition, awarded business may include business under arrangements that OEM customers have the right to terminate, at any time, without penalty. Therefore, the Company's actual sales volumes, and thus the ultimate amount of revenue that it derives from such sales, are not guaranteed. If actual production orders from its customers are not consistent with the projections used by the Company in calculating the amount of its new business wins, the Company could realize substantially less revenue over the life of these projects than the projected estimate.

The Company has manufacturing and distribution facilities in many foreign locations. International operations are subject to certain risks inherent in doing business abroad, including, but not limited to: - changes to international trade agreements;- local economic conditions, expropriation and nationalization, foreign exchange rate fluctuations, and currency controls;- withholding, border, and other taxes on remittances and other payments by subsidiaries;- investment restrictions or requirements;- export and import restrictions, including restrictions of certain products or materials or increases in border tariffs;- the ability to effectively enforce intellectual property rights;- new or additional governmental sanctions on doing business with or in certain countries or with certain persons; and - increases in working capital requirements related to long supply chains. Additionally, the Company's global operations may also be adversely affected by political events, domestic or international terrorist events, and hostilities or complications due to natural or other disasters. These or any further political or governmental developments in Mexico, China, or other countries in which the Company operates or where its suppliers are located could result in social, economic, and labor instability. These uncertainties including difficulties in mapping full supply chains could have a material adverse effect on the continuity of the Company's business, results of operations, and financial condition. Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement ("USMCA"), provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where the Company manufactures products, such as Mexico and China, could have a material adverse effect on its business and financial results. The USMCA will be renegotiated in 2026 and the Company could be adversely impacted if there were a material reduction in the benefits the USMCA affords to the Company. In addition the U.S. government increasingly imposes or threatens to impose new tariffs on imported products from Mexico, Canada, the European Union and China and reciprocal tariffs globally. The impact of these tariffs is subject to a number of factors, including the effective date and duration of such tariffs, changes in the amount, scope and nature of the tariffs in the future, any retaliatory responses to such actions that the target countries may take and any mitigating actions that may become available. The Company can provide no assurance that any strategies it implements to mitigate the impact of such tariffs or other trade actions will be successful. Management continues to monitor the volatile geopolitical environment to identify, quantify and assess proposed or threatened duties, taxes or other business restrictions which could adversely affect our business and financial results. In addition, U.S. trade legislation continues to evolve related to barriers on the use of various products and technology from around the world including but not limited to the (i) Uyghur Forced Labor Prevention Act and (ii) Securing the Information and Communications Technology and Services Supply Chain: Connected Vehicles. The Company can provide no assurance that any strategies we implement to mitigate the impact of any trade actions will be successful. The Company has invested significantly and is expected to continue to invest in joint ventures with other parties to conduct business in China and elsewhere in Asia. These investments may include manufacturing operations, technical centers, and research and development activities, to support anticipated growth in the region. If the Company is not able to strengthen existing relationships, secure additional customers, and develop market-relevant electrification, advanced driver assistance, and semi-autonomous and autonomous vehicle technologies, it may fail to realize expected rates of return on these investments. In addition, failure of the Company's joint venture partners to comply with contractual commitments or to exert influence or pressure in China may impact the Company's operations, financial condition and cash flow. The Company cannot predict the outcome of future interactions and it is possible that any future disputes and/or changes to the contractual obligations with the joint venture partner could have a material impact on the Company's business, operating results, financial condition, and cash flow.

As a result of Visteon's global presence, a significant portion of the Company's revenues and expenses are denominated in currencies other than the U.S. dollar. The Company is therefore subject to foreign currency risks and foreign exchange exposure. The Company's primary exposures are to the Brazilian real, British pound, Bulgarian Lev, Chinese renminbi, euro, Indian rupee, Japanese yen, Korean won, Mexican peso, and Thai bhat. While we typically hedge our foreign currency exposure, volatility in certain exchange rates could adversely impact Visteon's financial results and comparability of results from period to period.