An 2012 Audi TTS Coupe is displayed at the 9th China (Guangzhou) International Automobile Exhibition in Guangzhou, November 21. [Photo/chinadaily.com.cn]

Top European automaker Volkswagen AG is confident of selling more than 2 million cars in China this year and expects to continue to outpace the market, banking on the growth potential of smaller cities, its China chief said on Monday.

Volkswagen, which competes in China with General Motors Co and Nissan Motor Co Ltd among others, has been outperforming China's car market this year thanks to hot-selling Volkswagen and Audi cars.

"We passed 1 million in 2008 and nearly three years later we are absolutely confident we could pass 2 million this year," Karl-Thomas Neumann, president and CEO for Volkswagen's China operations, told reporters on the sideline of an autoshow in the southern Chinese city of Guangzhou.

China's once-booming vehicle market has cooled to a 3.2 percent gain in the first nine months, after jumping 32 percent and 46 percent, respectively, in 2010 and 2009.

The slowdown has been attributed to a raft of factors, from the end of tax incentives for small cars to local authorities' initiatives aimed at easing ever-worsening traffic congestion in major cities, such as Beijing.

Neumann, however, remains optimistic on the outlook of the Chinese passenger car market due to solid demand in medium-size and small cities which he believed would be a "major growth area" for the German automaker in the years ahead.

"Last year this time, more specifically around Christmas, everyone is saying 'ah, now it's over'. Beijing is introducing this limitation on vehicles to be registered so the market will slow down," he said.

"But in total, it is not only Beijing or Shanghai, China has much more (potential), as you can see here in Guangzhou and as you can see the growth in tier-two or tier-three cities."

In the first three quarters, Volkswagen, which operates manufacturing ventures with SAIC Motor Corp and FAW Group, sold 1.69 million cars in China, up 14.6 percent from the year-ago level.

GM, which also sells mini vans in the country, reported a 6.6 percent sales gain during the period, while smaller rival Ford Motor delivered 10 percent more vehicles.

Currently Volkswagen has nearly 19 percent of China's car market. In south China, a traditional stronghold of Toyota Motor, Nissan and Honda Motor, Volkswagen's market share has risen to 15.8 percent now, from 12 percent in 2009.

To continue the momentum, Volkswagen is working to more than double its annual capacity in China to 3 million units by 2015 and bringing in more new models, including Seat, Neumann added.

EV push

China has declared the electric vehicle industry a top priority, earmarking $1.5 billion a year for the next 10 years to transform the country into one of the leading producers of clean vehicles.

It handpicked 25 cities, including Beijing, Shanghai, Shenzhen and Hangzhou, to lead the migration to green vehicles.

But demand for EV has been held back by the lack of models to choose from, skimpy charging facilities, high sticker prices and safety concerns.

To jumpstart the market, regulators in Beijing, including the National Development and Reform Commission, issued a joint statement recently urging the pilot cities to make charging facilities available both on the street and in the neighborhood.

Residents in Beijing and Shanghai can also skip the mandatory license plate auctions or lotteries if they buy EV, the statement said.

The move had pushed up shares of BYD, a Warren Buffett-backed Chinese car maker, to its biggest daily gain in three years earlier in the month.

Both Volkswagen's China joint ventures have worked out prototypes of electric cars, with test fleets expected to be out early next year, Neumann said.

The company is also "aiming to go to seriously production" of locally produced electric cars under the Volkswagen brand in 2013-2014, he added.