Xiaomi’s Crossroads: EV Profits and Smartphone Headwinds Collide

Xiaomi KYG9830T1067

A major credit rating upgrade for Xiaomi has arrived alongside a significant divestment by a large shareholder, highlighting the complex dynamics at play within the Chinese tech giant. The company's latest quarterly results underscore a pivotal shift, with its nascent electric vehicle division turning profitable even as its core smartphone business faces mounting pressure.

Key Developments at a Glance:

• S&P Global Ratings has upgraded its outlook on Xiaomi from "Stable" to "Positive."
• The electric vehicle (EV) segment reported its first-ever operating profit of RMB 700 million, achieving a margin of 25.5%.
• Smartphone revenue declined by 3.1% to RMB 46 billion, with segment profitability falling to 11.1%.
• A bearish block trade saw 140,800 shares change hands at HKD 42.20.
• Smartphone memory chip inventories have dropped below the critical four-week threshold.

The decision by S&P Global Ratings to revise its outlook upward is rooted in Xiaomi's successful strategic diversification. Analysts at the agency believe the expansion into electric vehicles will not strain the conglomerate's overall cash flow or profitability, citing the division's promising start. Since commencing deliveries in April 2024, Xiaomi has shipped more than 500,000 EVs.

Electric Vehicles Emerge as a Profit Engine

Third-quarter financials reveal a fundamental rebalancing of the business. The EV unit generated revenue of RMB 28.3 billion, accounting for a quarter of the company's total sales. Perhaps more significantly, its operating margin of 25.5% now substantially outpaces the smartphone division's 11.1%, positioning it as a new driver of earnings quality.

Core Smartphone Business Under Dual Pressure

Xiaomi's traditional flagship segment is confronting challenges on multiple fronts. The 3.1% drop in revenue points to intense competition in the handset market. Simultaneously, cost pressures are intensifying. Industry analyst TrendForce reports that smartphone memory chip inventories have fallen to critically low levels. Soaring demand for AI server components is driving up prices for conventional memory, directly threatening smartphone margins that are already in decline.

Major Shareholder Executes Block Trade

Despite the positive credit news, market activity suggests some investors are taking a cautious stance. A notable block trade executed on Monday involved 140,800 shares at HKD 42.20 per share. Transactions of this nature often indicate institutional investors are capitalizing on current valuations to secure profits.

Looking ahead, Xiaomi remains committed to its growth roadmap. The company is targeting production of 400,000 vehicles in 2025, including the launch of its SU7 Ultra Supercar in the first half of the year. International distribution is slated to begin in 2027, with Europe highlighted as a key strategic market. The central question for investors is whether the accelerating success of the EV division can fully offset the persistent margin compression in the smartphone arena.