AB VOLVO 
The company, which makes trucks, construction equipment and buses, said the largest volume of potentially affected engines had been sold in North America and Europe, its two largest markets, and that costs to fix the problem "could be material".
The issue could become an added headache for Volvo, which has been working hard to protect profitability after a surge in demand in Europe and North America caused supply chain bottlenecks, inflating costs for raw materials and labour.
Several countries have in recent years set ambitious goals to cut carbon dioxide and nitrogen oxide emissions, bringing carmakers and truckmakers under greater scrutiny.
The car industry was rocked by the 2015 "dieselgate" emissions scandal after Germany's Volkswagen was forced to pay hefty fines after admitting to systematic emissions cheating. Volkswagen, which has pegged the financial toll at over $18 billion, is still dealing with the fallout of the scandal.
There was no indication on Tuesday that Volvo had cheated or hidden any emissions related information from authorities.
Volvo said all products equipped with the component met emissions limits at delivery and that its probe so far indicated that the degradation was not affecting all vehicles and engines in the same way and to the same extent.
The company had begun speaking to relevant authorities in Europe and North America, where emission regulations are strictest, a spokesman said.
An European Commission spokeswoman said the body would contact the Swedish authorities to gather more information, while Reuters was not immediately able to reach North American authorities outside of regular business hours.
EXTERNAL FAULT
The problem was with a catalyst converter sourced from an external provider, Volvo investor relations director Anders Christensson said, declining to name the provider or say whether Volvo would terminate the relationship.
"In certain applications when the engine is not running hot enough you get condensation water in there and that causes this problem. You get a warning signal in the dashboard saying you're running above nitrogen oxide levels," he explained.
Kepler Cheuvreux analyst Mats Liss said the question was whether the whole catalyst needed to be replaced or just one component, estimating the total cost for Volvo would be at least "a couple of thousands (of crowns) per truck instantly".
The Volvo spokesman said there were no plans yet to recall any vehicles and had not been asked by authorities to do so. Volvo sold 143,373 trucks in Europe and North America last year and reported operating income of 30.3 billion Swedish crowns.
The company's shares were down 5.3 percent at 134 pence on 0917 GMT, making it easily the biggest lower on Stockholm's bluechip index <.PL.OMXS30> on Tuesday.
It is due to report third-quarter results on Friday.
Analysts also speculated that an external supplier could mean that the problem was widespread and hit German truck rivals Volkswagen and Daimler. Volkswagen and Daimler did not immediately return calls seeking comments.
(Reporting by Esha Vaish in Stockholm, additional reporting by Helena Soderpalm, Editing by Niklas Pollard and David Evans)
By Esha Vaish
