Recently, Vernier permanent magnet (VPM) machines, one special case of magnetic flux-modulated (MFM) machines, benefiting from their compact, simple construction and low-speed/ high-torque characteristics, have been receiving increasing interest. In this paper, the Vernier structure is integrated with an axial-flux PM machine to obtain the magnetic gear effect and produce an improved torque density for direct-drive wind power generation application. Another advantage of the proposed machine is that the stator flux rotating speed can be relatively high when the shaft speed is low. With this benefit, sensorless control strategy can be easily implemented in a wide speed range. In this paper, an improved sliding mode observer (SMO) is proposed to estimate the rotor position and the speed of the proposed machine. With the estimated shaft speeds, the maximum power point tracking (MPPT) control strategy is applied to maximize the wind power extraction. The machine design and the sensorless MPPT control strategy are verified by finite element analysis and experimental verification.