Xiaomi's European Charm Offensive Fails to Offset Deepening Smartphone Crisis

Xiaomi's stock plunges 25% YTD as smartphone profits fall. The company is aggressively investing in electric vehicles and AI to drive future growth.

Xiaomi's share price touched a new 52-week low of €3.38 on Wednesday, a stark contrast to the red-carpet treatment the company's CEO was simultaneously offering in Beijing. While founder Lei Jun personally escorted Spanish Prime Minister Pedro Sánchez through the Xiaomi Technology Park to discuss digital infrastructure deals, investors focused on a harsh financial reality: the stock has plunged nearly 25% since the start of the year.

The steep decline underscores a painful transition. The company is aggressively shifting from a pure smartphone vendor to a mobility and artificial intelligence giant, but this strategic pivot is proving costly. Fourth-quarter adjusted profit plummeted 24%, squeezed by a brutal price war in its core business and significantly higher costs for memory chips.

Smartphone Strategy: Fewer Units, Higher Prices

The pressures in the smartphone division are acute. In the first quarter of 2026, Xiaomi shipped 33.8 million phones, a severe year-on-year decline of 19.1%. This represents the sharpest drop among the world's top five manufacturers. The primary culprit is a dramatic surge in component costs, with mobile DRAM and NAND flash memory prices rising approximately 90% in Q1.

In response, Xiaomi has deliberately throttled shipments of older, budget models to avoid implementing steep price hikes. Instead, the company is pushing into more premium segments. Its new flagship, the Xiaomi 17 Ultra featuring a 1-inch Leica sensor, has set internal sales records in the high-end market. The strategy is clear: sell fewer devices at a higher average price. On April 11, the company raised prices on select models, including the Redmi K90 Pro Max, by 200 yuan.

Betting the House on Cars and AI

With its traditional business under strain, Xiaomi is pouring resources into new growth engines. Its electric vehicle segment is gaining momentum, having delivered over 500,000 units since launch. The new SU7 generation secured 15,000 orders within 34 minutes of its reveal, with the total now exceeding 40,000. The division, which turned an operating profit of 700 million RMB in Q3 2025, is targeting 550,000 deliveries this year.

Simultaneously, the company is making a massive bet on artificial intelligence. Its proprietary MiMo language model has processed over one trillion API tokens. Xiaomi plans to invest 60 billion RMB in AI infrastructure over three years, with 16 billion RMB allocated for 2026 alone—70% of which is earmarked for new large language models and AI agents. It has already begun selling paid API subscriptions to developers.

A Test of European Ambitions

The company's European expansion, highlighted by the high-level meeting with Spain's leader, is a strategic priority. Spain is already Xiaomi's strongest European smartphone market, and new cooperation on digital infrastructure and data centers is on the table. This European push offers a vital alternative market as the company faces potential sharper sanctions from US politicians.

The ultimate test for this costly transformation is scheduled for 2027, when Xiaomi plans to officially start selling its electric vehicles in Europe. By then, management must prove its expensive expansion can yield profits outside China.

For now, investor skepticism runs deep. The stock trades almost 30% below its 200-day moving average, weighed down by US tariff concerns on Chinese tech firms. In a show of confidence, the management initiated a buyback in mid-April, purchasing 10.89 million shares for approximately HKD 333.85 million. Whether this signal is enough will become clearer with the next quarterly results, which will fully reveal the margin impact of the memory chip crisis. Market analysts forecast the global smartphone sector could contract by around 13% this year, suggesting Xiaomi's headwinds are far from over.