Xiaomi's Record Buyback and YU7 Rollout Battle a 43% Profit Meltdown as Chip Prices Bite

Xiaomi's record HK$20B buyback and YU7 SUV deliveries fail to reverse 30% stock slide; Q1 profit down 43% as memory chip costs crush smartphone margins, EV losses widen.

Xiaomi is sending two very different signals to the market this month. On one hand, it authorised a staggering HK$20 billion (US$2.55 billion) share repurchase programme – the largest in its history – while its stock languishes at a fresh 52-week low of €3.14. On the other, it began deliveries of the standard edition of its new YU7 SUV on 21 May, betting that a wider electric vehicle lineup can eventually compensate for the smartphone margin crisis. For now, neither move has calmed investor nerves. The shares have shed 30% since January and 46% over the past twelve months.

The root cause of the sell-off sits squarely in Xiaomi's first-quarter earnings, released earlier this month. Revenue fell 11% year-on-year to 99.1 billion renminbi, while adjusted net profit cratered 43% to 6.1 billion renminbi. The culprit is a surge in DRAM and NAND flash prices that has slashed the gross margin of the core smartphone and AIoT segment to just 10.1%. Xiaomi managed to push the average selling price of its handsets to a record 1,310 renminbi, and premium models now account for more than 23% of domestic sales, but the company could not pass on the full cost of memory chips to consumers. Analysts at Jefferies downgraded the stock on 27 May, adding further downward pressure.

To prop up the share price, the new buyback programme – which runs for twelve years and kicks off next week – dramatically expands the company's existing repurchase efforts. Xiaomi had already bought back 8 billion Hong Kong dollars' worth of its own stock this year. Founder Lei Jun is clearly signalling that management considers the current valuation too cheap. Yet the market is focused on fundamentals: the chip cost headwind is unlikely to ease before the second half of 2026, and the electric vehicle division remains a cash burner.

The EV business is a study in the same growth-versus-profit dilemma. Xiaomi delivered 80,856 vehicles in the first quarter, pushing segment revenue up 6.9% to 19.9 billion renminbi. But the operating loss widened to 3.1 billion renminbi as heavy investments, vehicle purchase subsidies and a rapidly expanding retail network ate into margins. The company now operates 490 sales centres across 143 cities, and group research-and-development spending jumped 33% to 9.0 billion renminbi. Management still aims to deliver 550,000 vehicles in 2026, and the YU7 SUV – launched in two versions – is seen as a critical step toward hitting that target.

Beyond the immediate margin squeeze, Lei Jun has laid out a long-term vision that ties smartphones, cars and smart-home devices together through artificial intelligence. The company plans to invest at least 60 billion renminbi in AI over the next three years. International expansion is also on the cards: Xiaomi intends to enter the European EV market in the second half of 2027, followed by right-hand-drive markets in 2028. The revenue potential is enormous, but the timeline to profitability stretches well into 2027 – far later than many investors would like.

For the moment, the buyback offers technical support, but it cannot fix the core problem. Xiaomi is caught between spiralling component costs and the need to fund EV growth. The stock is pricing in an eventual recovery, but until memory prices turn lower and the car division shows a credible path to black ink, the shares will struggle to regain altitude. The next two quarters will be decisive.