Sweden's Volvo said on Tuesday an emissions control component used in its vehicles was degrading more quickly than expected, which could cause engines to exceed emission limits for nitrogen oxides, sending its stock down sharply.
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.
Volvo, which sold 143,373 trucks in Europe and North America last year, said it was in the process of informing authorities.
A spokesman said Volvo had spoken to authorities in North America and Europe, where emission regulations are strictest, but there were no plans yet to recall any vehicles.
Several countries have in recent years set ambitious goals to cut carbon dioxide and nitrogen oxide emissions, bringing carmakers and truckmakers under greater scrutiny.
"We expect remedy to be recall and repair," Evercore analysts wrote in a client note.
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.
Volvo is due to report third-quarter results on Friday.