FRANKFURT (Reuters) - BMW AG (>> Bayerische Motoren Werke AG) has quietly throttled back its expectations for car sales this year, despite reporting a forecast-beating operating profit in the third quarter, when strong demand for sports utility vehicles helped offset lacklustre sales of electric cars.

While BMW Group is sticking to its goal of selling more than 2 million cars this year, Chief Financial Officer Friedrich Eichiner on Tuesday said BMW now expected a "solid" increase in sales in 2014, backtracking from an earlier forecast of expecting a "significant" increase.

Asked to clarify a company spokesman said a "significant" increase equates to a percentage sales rise in the high single-to low double-digit range, while "solid" is below that.

BMW's shares reversed earlier gains following the remarks, trading 2.9 percent lower at 82.78 euros by 1456 GMT, the leading decliners on Germany's blue-chip DAX <.GDAXI> index which was flat.

Last year BMW Group, which includes the Mini and Rolls-Royce brands, sold 1.964 million cars. But the economic outlook has darkened in recent months. In September alone, sales in Russia fell 27 percent, slowing growth momentum.

"We have to focus on profitability," Eichiner said, explaining that the Bavarian firm was willing to forego some volume sales for the sake of protecting its margins.

BMW has bet big on electric vehicles and small city cars such as the Mini. But it was gas-guzzling SUVs such as its biggest offroader, the X5, which helped boost BMW's sales and margins in the third quarter.

BMW has a broader range of SUVs than its competitors, including the current BMW X1, X3, X4, X5 and X6 models which make up 30 percent of its sales, a factor that has helped it retain the crown of largest-selling premium auto maker.

Last year BMW led the pack among the German premium auto makers, selling 1.65 million BMW-branded cars worldwide. Volkswagen's (>> Volkswagen AG) Audi was next at 1.57 million and Daimler (>> Daimler AG) in third place, selling 1.47 million Mercedes-Benz branded cars.

In the last three months sales of BMW-branded cars rose 6.9 percent, as demand for X1, X4 and X5 vehicles helped lift operating margins for BMW cars to 9.4 percent -- above the 8.6 percent achieved by rival Mercedes-Benz Cars and the 9.2 percent seen at Audi.

Quarterly earnings before interest and tax (EBIT) rose 17 percent to 2.26 billion euros ($2.8 billion), above the average forecast of 2 billion euros given in a Reuters poll of analysts.

"BMW continues to deliver very strong earnings and the outlook for the rest of this year remains very encouraging in our view," analysts at Evercore ISI said in a note.

Net profit, however, slipped 1 percent to 1.31 billion euros, below the 1.35 billion-euro average forecast. BMW said this was due to a higher tax bill and a writedown on the value of its stake in carbon fibre manufacturer SGL Carbon (>> SGL Carbon SE).

Between January and September sales of new BMW-branded sportscars improved in all regions, despite a 7.5 percent slide in the Mini brand and lower sales of BMW 3-series cars.

X5 sales surged 34 percent in the first nine months of 2014, helping to keep BMW's auto operating margin at the upper end of the company's target of 8 to 10 percent.

BMW has been under pressure to sell smaller, more fuel- efficient cars as a way to meet tougher anti-pollution rules in Europe, designed to lower carbon dioxide emissions (CO2).

While average emissions of the fleet had been lowered in Europe, BMW declined to say whether this applied globally.

"A lot of the time, people forget the customer," Chief Executive Norbert Reithofer told analysts, explaining that in end BMW will follow customer demand.

LACKLUSTRE ELECTRIC

BMW has also invested billions in developing electric car technology, launching its own "i" brand. But it had sold only 10,199 of the i3 hatchbacks by end-September. In February the company said it had "more than 11,000 orders".

Sales would have been higher but production constraints limited supply, Reithofer said.

"Expenditure on new technologies will remain high throughout the remainder of the year. One important factor driving this trend is the need to develop new technologies aimed at bringing down CO2 emissions even further," BMW said.

Slack demand for electric cars has forced smaller makers such as Fisker Automotive Inc and Coda Automotive to file for bankruptcy, along with car charging network firm Better Place.

More recently, both Daimler and Toyota said they had sold off their stake in pioneering electric sports car maker Tesla (>> Tesla Motors Inc), but both continue to make electric cars.

BMW has hedged its bets and also opted to make more and bigger lifestyle offroad vehicles. The United States has seen a resurgence in demand for SUVs thanks to cheaper fuel from shale oil.

Earlier this year BMW said it would build an X7 model, and expand production at its SUV factory in Spartanburg, South Carolina by 50 percent.

Sales of the Mini should also rebound with the global launch of the next generation three- and five-door versions, BMW said.

Operating cash flow in the automotive division fell 36 percent in the last quarter as BMW increased production of new models for a global rollout, including the Mini 5-door.

(1 US dollar = 0.7996 euros)

(Editing by Georgina Prodhan, David Clarke and Greg Mahlich)

By Edward Taylor and Irene Preisinger