Xiaomi’s Earnings Halved as AI Splurge and EV Losses Strain a Shrinking Core

Xiaomi's Q1 2026 net profit plunges 43% amid smartphone margin squeeze. Heavy AI and EV spending drives losses, while demand concerns emerge for its EV business.

Xiaomi is pouring record sums into artificial intelligence and electric vehicles, yet its bottom line is taking a beating. The Chinese tech giant reported a first-quarter 2026 net profit of just 6.072 billion yuan, a 43.1 percent plunge from a year earlier, while revenue slid 10.9 percent to 99.1 billion yuan. The results, released in May, sent the stock tumbling 4.57 percent to 28.4 Hong Kong dollars in a single session. That pain has persisted: the shares now trade at around 3.00 euros, down more than 30 percent since the start of the year and roughly 54 percent below the 52-week high of 6.51 euros reached in September 2025.

The root of the trouble lies in the core smartphone business, where margins are being squeezed from both sides. Global market share slipped to 11 percent in the second quarter of 2026, according to Omdia, trailing far behind Samsung’s 22 percent and Apple’s 20 percent. Xiaomi shipped 19.2 percent fewer handsets in the first quarter, and smartphone revenue fell 14.5 percent to 79.277 billion yuan. A brutal memory-chip super-cycle is driving up component costs — storage and memory now account for roughly 60 percent of the materials bill for budget devices — and there is no end in sight. Even as the average selling price hit a record 1,310 yuan and the share of premium models rose to 23.5 percent, the gross margin in handsets shrank from 12.4 to 10.1 percent.

Xiaomi is betting heavily that AI and electric vehicles can fill the gap. The EV and AI segment grew revenue 6.9 percent to 19.864 billion yuan, with 80,856 vehicles delivered in the quarter. But that expansion is expensive: the division posted an operating loss of 3.1 billion yuan. The company wants to deliver 550,000 EVs this year, up roughly 34 percent from 2025, and its EV gross margin stood at a healthy 26.4 percent in last year’s second quarter — well above Tesla’s 18.2 percent. Yet there are early warning signs that demand may be softening. Delivery times for the YU7 have shortened dramatically — from 53–56 weeks to just 7–10 weeks for the standard version — which some analysts interpret as a backlog running thin. Goldman Sachs figures show that in the 13th week of 2026 only 13,800 orders came in, a 61 percent drop week-over-week and 14 percent below the prior year’s level.

Meanwhile, the company is ramping up spending on AI like never before. Research and development outlays surged 33.4 percent to 9 billion yuan in the first quarter alone. Xiaomi plans to invest at least 16 billion yuan in AI this year and more than 60 billion over three years. One visible result is the MiMo-V2.5-Pro language model, which Artificial Analysis ranks first among open-source models. Xiaomi slashed API prices for the model by up to 99 percent to match rival DeepSeek V4-Pro — an aggressive grab for developers and enterprise customers, but one that pressures margins further.

Financially, Xiaomi is not in immediate danger. Cash reserves topped 220 billion yuan (roughly $29 billion), and the company has already bought back more than 8 billion Hong Kong dollars of its own stock, with plans for up to 20 billion more. The board is scheduled to approve first-half 2026 results on August 18.

The stock’s chart reflects the conflict between a corroding core and a costly pivot. The relative strength index sits at 61.6, in neutral-to-slightly-overbought territory, and the shares have recovered 7.94 percent over the past 30 days. But the 50-day moving average at 2.96 euros provides only fragile support, while the 200-day average at 3.82 euros remains 21 percent above the current price — a reminder that the medium-term downtrend is intact.

Adding to the reputational headwinds, a Chinese court recently sentenced a blogger to 20 months in prison and fined him 100,000 yuan for posting a fabricated crash-test video of the SU7 in August 2024. The video falsely claimed doors could not be opened after impact and that the emergency call failed. Such episodes do little to restore investor confidence in a company that, for now, is asking the market to bet on a future that remains years from delivering sustainable returns.