(Adds Volvo spokesman comment)
By Johan Ahlander and Esha Vaish
Jan 3 (Reuters) - Sweden's Volvo is setting aside 7 billion Swedish crowns ($778 million) to cover costs related to its admission in October that its truck and bus engines could be exceeding limits for nitrogen oxide emissions.
The company, which makes trucks, construction equipment and buses, said on Thursday the estimated costs were based on factors including vehicle testing and statistical analysis, and were made in dialogue with relevant authorities.
Volvo said in October its truck and bus engines might be exceeding limits for toxic nitrogen oxides because an emissions control component it uses was degrading.
Claes Eliasson, head of media relations, declined to say how many vehicles were affected or to name the supplier of the component.
"In the U.S. market we have replaced the affected component with a another, new component in new production and we will do so for other affected markets in the first half of 2019," he told Reuters, adding no recalls had yet been made.
Volvo said it would continuously assess the size of the provision as the matter develops and that it would impact operating income in the fourth quarter of 2018, while the negative cash flow effect would start in 2019 and gradually ramp up in the coming years.
The European Commission and the California Air Resources Board, key regulators on either side of the Atlantic, did not immediately respond to requests for comment.
$1 = 8.9959 Swedish crowns Reporting by Johan Ahlander; Editing by Mark Potter