While that demand is expected to underpin strong sales volumes, VW again cautioned that high costs for raw materials as well as volatile interest and exchange rates, could put a squeeze on margins.
VW's operating margin grew to 7.9 percent in the second quarter from 6.0 percent a year earlier.
Shares in Europe's biggest car maker were down 6 percent after the company unveiled a 59 percent rise in second quarter operating profit to 3.17 billion euros. However, this fell short of the 3.22 billion consensus in a Reuters poll.
VW was underperforming the STOXX Europe 600 Automobiles and Parts index <.SXAP>, which was down 2.8 percent, but one Frankfurt-based trader said he was sanguine about the margin squeeze.
As usual the outlook includes a mixed tone but one should not read too much into this, he said.
Max Warburton at Bernstein Research said: While the second quarter did not show the advance that some of us were anticipating, profitability remains robust
Vehicle deliveries were up 15 percent in the quarter, boosted by the launch of a new Passat in China, the launch of the new Beetle in the U.S. and Europe as well as solid demand for premium brand Audi.
Volkswagen said it expected global demand for passenger cars to be higher this year than in 2010, adding positive growth trends in China and India are set to continue.
BUMP IN THE ROAD
Volkswagen signaled it had hit a speed bump on plans to integrate Porsche
The maker of the Beetle and the Golf models said it was preparing for the eventuality that a resolution on the merger will not be adopted this year, adding it remains committed to its goal of creating an integrated automotive group with Porsche, regardless of how it ultimately tries to achieve this.
In the meantime, the group pocketed a 2.5 billion euro ($3.6 billion) gain in its net profits related to the revaluation of put and call options linked to the deal, a spokesman for Volkswagen said.
(Reporting by Edward Taylor; Editing by Chris Wickham)