Volvo shares slump as firm warns vehicles may be failing emission legal limits

  • Volvo Group shares fall 5 percent on emissions failure announcement.
  • The Swedish company said engines sold in North America and Europe are most likely affected.
  • The failing component is part of a catalytic converter and is designed to limit emission of nitrogen oxide.
A row of new Volvo truck units.
Erik Abel | Bloomberg | Getty Images
A row of new Volvo truck units.

Shares in the bus and truck maker Volvo Group fell sharply on Tuesday after the company admitted that a part designed to limit poisonous emissions is failing.

The world's second biggest truckmaker admitted Tuesday that some vehicles on the road are likely emitting illegal levels of nitrogen oxide. Volvo Group added in its statement that costs related to fixing the problem "could be material."

By midday, Volvo group shares listed on the Nasdaq Stockholm index were lower by more than 5 percent.

"One of the components that is in the catalyst may degrade quicker than expected," Claes Eliasson, senior vice president of Volvo Group's communication team told CNBC by phone.

Eliasson added that some truck drivers were being alerted to the problem by a warning light in their cab.

Volvo said the number and type of engines or vehicles affected remained unknown, but the largest volume of potentially affected engines had been sold to customers in North America And Europe.

The firm said that its investigation had indicated that the degradation of the component didn't appear to affect all vehicles and engines to the same extent.

Volvo said it did not know yet if a recall would be necessary, but in an email to CNBC on Tuesday, an equity analyst at Kepler Cheuvreux, Mats Liss, said it would be a probable outcome.

"Emissions are high on the political agenda, so I guess Volvo needs to make a recall," he said.

Th European Union Commission said Tuesday that it will get in touch with Swedish authorities for more information about the apparent failing.

The Volvo Group delivered 81,259 trucks to Europe and North America in the first six months of 2018. In 2017, the firm's annual sales amounted to 335 billion Swedish krona ($37.6 billion).