Xiaomi's EV Profits Fail to Offset Soaring Smartphone Costs

Xiaomi's EV unit turns profitable fast, but surging memory chip costs cause its first quarterly profit drop in 3 years, forcing strategic AI investments.

The Chinese technology conglomerate Xiaomi has achieved a significant milestone in its nascent electric vehicle division, reaching profitability far quicker than industry observers anticipated. However, this automotive triumph is being eclipsed by a severe cost crisis in its core smartphone operations, which triggered the company's first quarterly profit decline in three years during Q4 2025.

Core Business Under Pressure from Component Costs

A dramatic surge in memory chip expenses has severely impacted Xiaomi's flagship business. The group's adjusted net profit fell by 23.7 percent to 6.3 billion yuan in the final quarter. According to company President Lu Weibing, prices for key memory modules like DRAM and NAND nearly quadrupled in Q1 2026 compared to the prior-year period.

The cost for a standard combination of 12 GB of RAM and 256 GB of flash storage has skyrocketed to approximately $130, up from around $30 previously. Consequently, smartphone shipments for the year reached 165.2 million units, missing the annual target of 180 million. In a strategic response to these challenges, CEO Lei Jun announced substantial forthcoming investments, pledging at least 60 billion yuan over the next three years to advance artificial intelligence development.

The persistent high cost of components is forcing Xiaomi's hand. With company leadership not ruling out further price increases for consumers, the pricing strategy for upcoming smartphone models will be crucial in determining whether profits from the automotive segment can make a tangible impact at the corporate level.

Electric Vehicle Division Hits the Ground Running

Xiaomi's performance in the fiercely competitive auto market stands out for its speed to profitability. The company's EV and AI segment posted an operating profit in its first full year, achieving a robust gross margin of 24.3 percent. The SU7 model has been a primary growth driver. Key metrics from the division highlight its rapid progress:

• Annual Operating Profit (EV/AI): 900 million yuan
• 2025 Vehicle Deliveries: 411,082 units
• 2026 Delivery Target: 550,000 vehicles

Demand for the new generation of the SU7 remains strong, with the company registering 15,000 orders within the first 30 minutes of sales opening.

Market Skepticism Weighs on Share Performance

On the stock market, skepticism currently prevails regarding high hardware costs and global supply chain issues. Shares closed recently at 3.55 euros, a mere 3.3 percent above the 52-week low marked in early March. Since the start of the year, the stock has recorded a loss of nearly 21 percent.

The contrasting narratives—of a surprisingly profitable new electric car venture and a core business grappling with severe margin pressure—define Xiaomi's current crossroads as it navigates its dual identity as a tech and automotive firm.