Cummins (CUM) Risk Analysis

We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in laws, regulations and government policies on foreign trade and investment can affect the demand for our products and services, cause non-U.S. customers to shift preferences toward domestically manufactured or branded products and impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from international trade agreements, such as the United States-Mexico-Canada Agreement and the U.S. trade relationships including those with China, Brazil, E.U. and the U.K. More restrictive trade policies, such as efforts to withdraw from or substantially modify such agreements or arrangements, including, without limitation, higher tariffs or new barriers to entry could adversely impact our production costs, customer demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our results of operations, financial condition and cash flows. Embargoes, sanctions and export controls imposed by the U.S. and other governments restricting or prohibiting transactions with certain persons or entities, including financial institutions, to certain countries or regions, or involving certain products, could limit the sales of our products. Embargoes, sanctions and export control laws are changing rapidly for certain geographies, including with respect to China. In particular, changing U.S. export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties, could affect our ability to collect receivables, access cash generated in China, provide aftermarket and warranty support for our products, sell products and otherwise impact our reputation and business, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.

Our strategy includes significant investments in the development of new products and technologies, particularly those designed to meet or exceed current and anticipated regulatory requirements related to emissions, safety and environmental performance. Any significant reduction, delay, or elimination of, or failure to adopt or enforce, such regulatory requirements in key markets could reduce or delay demand for our products and services, increase our costs of producing or delay the introduction of new or modified products and services or restrict our existing activities, products, and services. In addition, any discontinuation or reduction of incentives or benefits for the development of technologies limiting the impact of climate change, or significant uncertainty regarding such efforts, may cause demand for certain of our future products to be less than we anticipate. Any such change in regulatory requirements or incentives may ultimately weaken or render obsolete the business case for certain research and development initiatives or capital investments. As a result, we may be required to reassess, scale back or discontinue investments in future products that were originally intended to address more stringent regulatory standards, and may fail to realize the intended benefits of, or recover the investments we have already made in, developing new products and technologies. In addition, the adoption of new regulations or industry standards which our products and services are not positioned to address, could adversely affect demand for our products and services. Deregulation or reduction in incentives may also lead to reduced industry-wide innovation, as both we and our competitors could deprioritize or delay the introduction of advanced technologies that are no longer mandated. This could limit our ability to differentiate our products, respond to evolving customer expectations or maintain leadership in markets where regulatory requirements remain in place or are later reinstated. Furthermore, if we have already made substantial investments in anticipation of future regulations that are subsequently rolled back, we may not be able to recover those costs, which could result in asset impairments or reduced returns on investment. Any of these outcomes could adversely affect our long-term growth prospects, competitive position and financial results.

Due to the international scope of our operations, we are subject to additional regulatory frameworks, including a complex system of commercial and trade regulations, around the world. In some cases, foreign regulatory frameworks are more stringent or complex than similar regimes in the U.S. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries and expected global sustainability regulations, as well as new regulatory requirements regarding data privacy, such as the European Union General Data Protection Regulation. These new and emerging regulations are likely to require significant resources and data management systems and could increase our cost of doing business, restrict our ability to operate our business or execute our strategies and could result in fines and penalties or reputational harm if we do not fully comply. Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business and results of operations, financial condition and cash flows. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.