VW has said that far fewer of its cars are affected by inaccurate carbon dioxide emissions and fuel usage measurement than it originally thought.
The automaker now estimates that about 36,000 of the cars it produces each year are affected.
Last month, Volkswagen said an internal investigation suggested that CO2 emissions and fuel consumption had been understated for 800,000 vehicles.
It warned at the time that the problem could cost it about €2 billion.
“Following extensive internal investigations and measurement checks, it is now clear that almost all of these model variants do correspond to the CO2 figures originally determined.
“This means that these vehicles can be marketed and sold without any limitations,” VW said in a statement.
The company suggested its findings meant that the charge was now likely to be lower.
“The negative impact on earnings of €2bn that was originally expected has not been confirmed. Whether we will have a minor economic impact, depends on the results of the re-measurement exercise,” it added.
VW has already put aside €6.7 billion to meet the cost of recalling 11 million diesel vehicles worldwide that were fitted with so called “defeat devices” that circumvented tests for emissions of nitrogen oxides.
The scandal was revealed in September by US regulators, who said the software detected when vehicles were undergoing emissions tests and changed the way they operated.
Investors, who had feared that the CO2 problem could be as large as its “defeat devices” scandal, were clearly relieved by the statement.
VW’s shares, which have fallen almost 30% this year, rose almost 5% after the statement.
The VW scandal widens as the automaker says it has found “irregularities” in carbon dioxide emissions levels, which could affect around 800,000 cars in Europe.
Volkswagen said the issue, which it came across while investigating diesel emissions, could cost about €2 billion.
Brands including VW, Audi, Skoda and Seat could be affected.
The issue mainly affects diesels, but could also include petrol models.
CO2 is a greenhouse gas, as opposed to the NOx involved in earlier allegations, which is a pollutant that causes lung disease.
The so-called irregularities that have now been found relate to the way in which CO2 emissions and fuel consumption were measured during the technical approval process for some models.
VW has not said whether or not it believes those irregularities were caused by deliberate action and it also has not specified which models are affected.
The company’s CEO Matthias Muller said: “From the very start I have pushed hard for the relentless and comprehensive clarification of events. We will stop at nothing and nobody. This is a painful process, but it is our only alternative. For us, the only thing that counts is the truth.”
The company’s board will talk to regulators about the consequences of its discovery, VW said in a statement, adding that “the safety of the vehicles is in no way compromised”.
The supervisory board issued a separate statement saying it was “deeply concerned” and promising “to ensure swift and meticulous clarification”.
The latest setback comes a day after US authorities accused VW of fitting nitrogen oxide defeat devices on its larger 3.0 liter diesel vehicles – charges which VW denied.
VW is already beset by scandal after the EPA discovered that some of its diesel vehicles were fitted with software that detected when they were undergoing emissions tests and changed the way they operated.
The so-called defeat device is understood to be in 11 million vehicles worldwide.
Earlier, it was announced that VW’s sales in the US had risen in October, despite the scandal.