A faulty oxygen sensor provides inaccurate information to the engine control module (ECM) about the air/fuel mixture. If the ECM receives consistently bad data, it might enter a "limp mode" or "failsafe mode" to protect the engine. This mode often results in reduced engine power to prevent further damage. The reduced power is a *symptom* of the ECM trying to compensate for the bad sensor data, not the sensor itself directly causing the reduction.
However, other problems can also trigger a reduced engine power warning. The ECM could be flagging the code from the bad O2 sensor, or the problem could be entirely unrelated. A proper diagnosis requires using an OBD-II scanner to retrieve diagnostic trouble codes (DTCs). The codes will pinpoint the likely cause(s) of the warning light.
