Xiaomi's Auto Software Clears ASIL-D Hurdle as Margins and EV Losses Weigh on the Stock

Xiaomi's Vela Safety platform earned ISO 26262 ASIL-D certification, but Q2 revenue fell 6.1% and adjusted net profit dropped 42.6% year over year.

Xiaomi has secured the highest functional-safety rating for its in-house automotive operating system, a milestone that lands at an awkward moment for a company whose core hardware business is bleeding margin and whose electric-vehicle unit is still burning cash.

The group's Vela Safety platform received ISO 26262 certification at the ASIL-D level, the most stringent tier for safety-critical vehicle functions, following an audit by TÜV Rheinland. It is a notable leap for software that once ran smart speakers and connected lightbulbs at home. Since 2024, Xiaomi has been tailoring the Vela platform specifically for automotive electronic control units, and the certification now puts its code on par with the requirements governing chassis and powertrain control.

That push into the automotive value chain extends well beyond lines of code. On the battery side, Xiaomi is developing its "Dragon Scale" system in close cooperation with partners including CALB and Sunwoda, a program that has established more than 8,000 quality-control checkpoints. The twin strategy — certified software architecture paired with proprietary battery concepts — reflects how quickly consumer-electronics players are repositioning themselves as full-fledged auto-industry participants. Sourcing components and wrapping them in a striking body no longer suffices; control over the safety-critical core is what separates the field's leaders from those left riding on someone else's platform.

A flagship launch against a deteriorating backdrop

The certification arrives alongside a product offensive at the premium end. On Wednesday, Xiaomi unveiled its Xiaomi 18 Pro flagship, built around a 2-nanometer processor and camera systems supplied by partner Leica. The company is also preparing new mid-range devices for the global market, including the POCO X8s with a 50-megapixel main camera. Measurements of the upcoming flagship generation suggest a finely tuned regional split, with global variants expected to ship with smaller battery capacities than their Chinese counterparts.

Those launches are unfolding against a sharply weaker financial picture. In the second quarter of 2026, group revenue fell 6.1% to 108.9 billion yuan, while adjusted net profit dropped 42.6% year over year to 6.22 billion yuan — missing the 6.6 billion yuan consensus forecast.

The pressure is concentrated in the traditional handset business. Smartphone revenue declined 7.5% to 42.1 billion yuan as shipments tumbled 26% to 31.2 million units. Group gross margin narrowed to 19.8% from 22.5% a year earlier, and media reports put the smartphone segment's standalone gross margin at just 8.5%. The culprit is a surge in component prices. Research firm TrendForce projects that memory chips could account for as much as 42% of total manufacturing costs by the first half of 2027, and management is bracing for sustained cost pressure into 2027 and 2028.

EV volumes climb, losses persist

Xiaomi's automotive ambitions are simultaneously consuming substantial liquidity. Electric-vehicle deliveries rose 28.2% in the second quarter to 104,199 units, yet the segment posted an operating loss of 2.6 billion yuan. A European launch for the company's large models remains undecided for now, though the group is pressing ahead with international expansion: an official market entry for its EVs on the continent is targeted for 2027. Preparations for the sales network are already underway, with letters of intent signed more than a month ago with eight German dealer groups, among them Emil Frey Deutschland, Ernst Dello and LUEG Mobility. Xiaomi also operates a research and development center in Munich.

What the market is pricing in

Investor caution is evident in the share price. The stock closed yesterday at EUR 2.96 and has lost 32% since the start of the year, leaving it at EUR 2.94 at one point. The gap to its 52-week high of EUR 6.54, set exactly a year ago, stands at a painful 55%. With a converted market capitalization of EUR 75.77 billion, Xiaomi remains one of Asia's technology heavyweights despite the operational strain.

The ASIL-D certification demonstrates that the company's technological maturity is advancing and that it meets international safety standards. The harder test lies ahead: proving that certified operating systems and partnership agreements can translate into a sustainably profitable return profile. The technical path from smartphone specialist to mobility group is paved — but on financial markets, confidence remains the toughest currency of all.