Xiaomi's Core Business Faces Profitability Crisis Despite Record Revenue

Xiaomi's 2025 revenue hit a record, but Q4 smartphone margins collapsed to 8.3%, overshadowing a surprise profit from its electric vehicle division.

While Xiaomi's full-year 2025 results showcased a historic revenue high and a surprisingly profitable electric vehicle division, a detailed examination of the fourth quarter reveals severe strain in its foundational smartphone operations. This core weakness is the primary reason investor sentiment toward the technology conglomerate has turned negative.

For the complete fiscal year, the Chinese company reported a robust 25% increase in revenue, reaching 457.3 billion CNY. However, the group's operating profit plummeted by 45% to 3.2 billion CNY by year-end. The smartphone division is chiefly responsible for this decline. In the final quarter, revenue from this segment contracted by 13.6% amid falling shipment volumes. Market analysts are particularly concerned by the collapse of the gross margin to a meager 8.3%. Soaring costs for memory chips and the cessation of government subsidies in China are eroding profitability. This is clearly reflected in the share price performance: closing at 3.59 euros on Friday, the equity has declined by over 20% since the start of the year.

Dual Strategy: Hardware and AI Investment

Confronting pressure in its mobile business, Xiaomi's management is deploying a two-pronged approach. The company recently launched sales of the budget-friendly Redmi 15A to retain price-sensitive customers, while simultaneously positioning the premium Xiaomi 17 Ultra model in the European market. In parallel, substantial capital is being channeled into software development to reduce reliance on pure hardware sales. Xiaomi has budgeted over 40 billion CNY for research and development in 2026, with a significant portion dedicated to artificial intelligence initiatives. The recent unveiling of its proprietary large language model, MiMo-V2-Pro, underscores this strategic priority.

Electric Vehicles Emerge as a Profit Engine

In stark contrast, the nascent automotive business is on a different trajectory. In 2025, this segment delivered more than 411,000 units of its SU7 model and achieved a financial turnaround. Reporting an operating profit of 900 million CNY, Xiaomi significantly exceeded market expectations, especially considering the division recorded a multi-billion loss the previous year. The segment's gross margin climbed to a respectable 24.3%. Demand remains strong; in March 2026 alone, the new SU7 series garnered over 30,000 firm reservations within a three-day period.

The technology giant is currently undergoing a radical business model transformation. As its classic hardware division grapples with rising component costs, success on the road is increasingly bolstering the balance sheet. The upcoming official market launch of the new YU7 SUV model is now viewed as the next critical catalyst for the stock. The final pricing strategy for this vehicle will be a decisive factor in determining whether Xiaomi can sustain its high level of profitability within the automotive sector.