Volvo AB, the world’s second-largest truckmaker, will set aside 7 billion kronor ($780 million) to address a faulty emissions-control component that’s worn out more quickly than expected.
The charge will eat into operating income in the just-finished fourth quarter, while the drag on cash-flow will last for several years, the Gothenburg, Sweden-based manufacturer said Thursday in a statement issued after trading closed in Stockholm.
Volvo fell the most in six months on Oct. 16 after disclosing that issues with the part, which comes from an outside supplier, “could be material.” The company has said that a component in trucks widely sold in Europe and the U.S. was degrading faster than expected, potentially leading to the release of emissions exceeding limits.
The revelation by Volvo has come against a backdrop of Volkswagen AG’s emissions scandal that erupted in 2015, when the carmaker was caught using software to circumvent pollution controls. Truckmakers like Volvo have so far escaped scrutiny.
The company is still working through how to address the problem, and is working with authorities to come up with a solution, it said on Thursday. The U.S. Environmental Protection Agency said in October it was in talks with Volvo to address the issue.
U.S. diesel-engine maker Cummins Inc. said in July that it would pay $404 million through 2020 for repairs to ensure its engines keep pollution below legal limits as they age. EPA and the California Air Resources Board had found previously that some older Cummins engines failed emissions tests as parts wore out.