Volvo trucks slumps after warning over faulty emissions part

Bloomberg

Volvo AB slumped after uncovering a faulty component in the emissions-control setup of tru-cks widely sold in Europe and the US, the manufacturer’s biggest markets.
The world’s second-largest truckmaker has started informing authorities about the issue, caused by materials from which a component is made degrading over time and potentially leading to the release of emissions exceeding limits. The cost to fix the problem with the part, which comes from an outside supplier, “could be material,”
the Gothenburg, Sweden-based company said in a statement.
Volvo slid as much as 9.3 percent, the most intraday since June 2016. The stock was 5.6 percent lower at 134.60 kronor as of 12:15 p.m. in local trading, wiping about 16.8 billion kronor ($1.9 billion) off the company’s market value.
The revelation by Volvo comes 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, and in Volvo’s case, it says a component made by another company is to blame.

SUPPLY CHAIN
While parallels may be drawn with the issues that have plagued carmakers, Kepler Cheuvreux analyst Mats Liss said Volvo’s problems are based on the failure of a component and not willful tampering with software. “It’s hard to know exactly at which level of the supply chain this issue has occurred,” Liss said. “It may take time to determine the responsibility and if a component from a supplier has failed the cost burden should be shared.”
Most of the Volvo vehicles that were potentially affected were sold in North America and Europe, Volvo’s two largest markets, which represented a combined two-thirds of deliveries last year. Volvo is still assessing the extent of the problem, spokesman Claes Eliasson said by phone. The failure showed up through the company’s own diagnosis system, which throttles the engine when an issue occurs that could cause the truck to exceed emission limits.
Volvo has sold about 700,000 trucks in North America and Europe since 2014, when stricter emissions rules were implemented, and addressing the issue in all of them would be significant, according to Kepler’s Liss. “It’s a lot of trucks, but it remains to be seen how many will need to be fixed,” he said. “It’s an uncertainty that needs to be taken into account.”
While the company said the fault could potentially cause the release of excessive levels of harmful nitrogen oxide, its trucks have systems that should automatically prevent this.