Xiaomi's Twin Fronts: A European EV Push and a Silicon Counterattack Against Soaring Component Costs

Xiaomi's Q2 profit fell 42.6% amid memory chip costs; it unveils own chip, plans European EV launch by 2027, but stock down 48% in a year.

The road ahead for Xiaomi runs in two directions at once: westward toward Europe's showrooms and inward toward silicon self-sufficiency. Both paths carry heavy implications for investors watching a stock that has shed nearly half its value over the past year.

A Chip Answer to a Chip Problem

The company's most immediate headache is pricing pressure in its core smartphone business. Memory chip costs have exploded, and the damage showed up squarely in the second-quarter numbers. Adjusted net profit tumbled 42.6 percent year-on-year to 6.2 billion yuan, while revenue slipped 6.1 percent to 108.9 billion yuan — roughly $16.2 billion at current exchange rates. Both figures missed analyst consensus estimates, according to Reuters.

Xiaomi's response is characteristically vertical: build its own silicon. On August 24, the company unveiled the Xuanjie O3, a self-developed 3-nanometer processor designed to reduce reliance on third-party suppliers. Management argues the chip will strengthen the supply chain precisely where it proved vulnerable last quarter.

The company is also locking down memory supply for a marquee product. Reports indicate CXMT will supply LPDDR6 DRAM for the upcoming "18 Fold" foldable smartphone, which Xiaomi's official Weibo channels have confirmed for a September release. The pairing of an in-house chip with secured memory inventory is a direct attempt to protect margins in a segment where component costs have become the single biggest drag.

Management struck an optimistic note on the second half, suggesting the worst of the memory-price pressure has passed as the pace of increases is expected to moderate.

Europe Beckons — But Profitability Lags

On the automotive side, Xiaomi has formally kicked off its European market entry. A new global web portal and dedicated social media channels for the vehicle division mark the opening salvo ahead of a planned launch in the second half of 2027.

The product pipeline is aggressive. The YU7 — internally codenamed MX11 — will be the company's first SUV, built on the 800-volt Modena platform. Styling reportedly draws inspiration from the Ferrari Purosangue, but the competitive target is squarely the Tesla Model Y, placing Xiaomi in one of the most contested segments in global electric vehicles.

Adding to the hardware push is the Xring D100, the company's first in-house autonomous driving chip, aimed at deepening vertical integration and cutting external supplier dependency.

At the Chengdu Motor Show, the automotive arm also unveiled SkyNomad, a new sub-brand focused on SUVs with range-extender technology, led by the N70 Max and the flagship N90 Max. The mood was briefly dampened by media reports of a recall tied to technical issues with flush door handles.

The financial picture from the vehicle division is improving but far from profitable. The operating loss narrowed from 3.1 billion to 2.6 billion yuan in the second quarter. However, gross margin in the automotive business fell sharply from 26.4 percent to 19.2 percent year-on-year — a clear sign that growth and scale are currently coming at the expense of profitability.

Demand, at least, remains robust. The SU7 electric sedan surpassed 500,000 delivered units within 28.5 months of its sales launch, a milestone that underscores continued consumer appetite despite margin pressure.

In a separate corporate development, Liu Hao stepped down as Joint Company Secretary, with Gao Yuan — previously Director of Investor Relations — assuming the role with immediate effect.

A Stock in Search of a Catalyst

The market's verdict on all this activity has been harsh. The shares closed Friday at 3.07 euros, up 2.4 percent on the day, but that bounce does little to offset a grim longer-term picture. The stock is down 29 percent year-to-date and 48 percent over the past twelve months. It sits 53 percent below its 52-week high of 6.54 euros, reached in September 2025.

There is some consolation in the downside: the current price stands roughly 31 percent above the 52-week low of 2.34 euros, set as recently as June. But with 30-day volatility at 58 percent, the stock remains a bumpy ride.

The company's market capitalization currently stands at approximately 77.97 billion euros, and the path to a sustained re-rating depends on two variables: whether memory prices indeed ease in the coming quarters, and whether the EV business can convert its delivery momentum into healthier margins.

The September launch of the "18 Fold" will serve as the first concrete test of whether the new supply-chain strategy holds up under real market conditions. The European automotive rollout, meanwhile, remains a longer-term narrative — one that will require patience from shareholders who have already endured a difficult year.