Xiaomi's Double Squeeze: Smartphone Margins and EV Startup Costs Test Investor Patience

Xiaomi's Q1 net profit drops 57% amid rising costs and EV losses; stock down 49% in a year, buyback questioned.

The arithmetic at Xiaomi is becoming brutally simple: revenue is shrinking, but profits are evaporating far faster. That disconnect, more than any single headline, explains why the stock now trades at roughly half its value from a year ago.

Shares closed Wednesday at EUR 2.92, down 2.2 percent on the day. The longer-term picture is starker — a 33 percent decline since January and a 49 percent drop over twelve months, leaving the equity about 20 percent below its 200-day moving average of EUR 3.66. The market capitalization has shrunk to approximately EUR 78.85 billion, a long way from the 52-week high of EUR 6.54 touched in late September.

The Profit Squeeze Is the Story

The first quarter of 2026 laid the problem bare. Revenue came in at 99.142 billion yuan, down 10.9 percent year over year. But net profit collapsed to 4,723.12 million CNY from 10,924.32 million CNY in the prior-year quarter — a roughly 57 percent plunge. Adjusted net income fared little better, falling 43.1 percent.

The China International Capital Corporation expects more of the same when second-quarter numbers land on August 18. The brokerage projects revenue of 107.14 billion yuan, down 7.6 percent, and adjusted net profit of 6.114 billion yuan, off 43.6 percent. If those forecasts hold, the margin erosion is not a blip but a structural issue, driven by rising memory chip costs and the startup losses inherent in scaling an electric vehicle division.

Daiwa has similarly flagged expectations for a weak Q2, according to market reports. The smartphone side of the business offers little near-term relief: shipments in China have now declined for five consecutive quarters, with rising costs cited as the culprit. Xiaomi has responded with price increases on its flagship handsets, though whether that offsets the margin damage won't be clear until the earnings release.

A Buyback That Raises Questions

Against this backdrop, Xiaomi has launched a share repurchase program worth HK$20 billion — a move that invites scrutiny given the timing. Between June and July, the company bought back shares in 14 tranches, starting at HK$28.65 and most recently at HK$25.82 on July 15, for a total of HK$100.7 million. Under the mandate dated June 2, which covers up to 2.58 billion shares, Xiaomi has so far retired 79.8 million shares, or 0.31 percent of the outstanding count.

The optics are mixed. Management is signaling confidence in the long-term story, and it has reaffirmed its 2026 delivery target of 550,000 electric vehicles. But the net effect is diluted by the 824,000 new shares issued through employee incentive programs during the same period. Buying back stock into a falling market while simultaneously issuing new equity is more cosmetic than transformative — the balance sheet math barely moves.

EV Ambitions and a September Catalyst

The electric vehicle push remains the primary growth narrative. Xiaomi launched its "SkyNomad" SUV series with range-extender technology in late July, marketing the models around spacious, flexible interiors. The launch landed during a period of share-price weakness, with concerns over the pricing of the new SUVs adding to the pressure.

There are encouraging signs beyond the company's own efforts. Stellantis reportedly held talks with Xiaomi and Xpeng about potential cooperation earlier this year, according to Handelsblatt — evidence that established automakers take Xiaomi's EV ambitions seriously. In the smartphone segment, a new flagship series in the 18-line is expected in China in September, which could provide fresh momentum.

The regulatory environment in China remains a watch item. In mid-July, state media reported that a blogger had been detained for fabricating claims about Xiaomi electric vehicle videos — a reminder of how sensitive Beijing is about coverage of domestic EV makers. A compliance meeting for the auto industry in Shanghai, attended by Xiaomi, Tesla, and BYD, added to the sector's scrutiny, though it carried no company-specific consequences.

The Verdict Awaits August 18

For investors, the calculus is straightforward but uncomfortable. The EV division and product pipeline offer genuine upside, but those opportunities need time to show up in the financials. Meanwhile, the smartphone business is bleeding margin, and the buyback program does little to offset the earnings erosion.

The August 18 earnings report will be the defining moment. If the CICC's projections prove accurate, the margin squeeze is structural, not cyclical. With the stock trading below its 200-day average and volatility running at 60 percent, the risk-reward balance currently favors patience over conviction.