Xiaomi's Two-Front Battle: EV Momentum Meets a Harsh Smartphone Reality

Xiaomi's EV business hits record 104,199 deliveries, but smartphone shipments drop 26.5% amid memory-chip price crisis, splitting analyst views.

The numbers coming out of Xiaomi's second quarter tell a story of a company operating in two very different worlds. On one side, the electric vehicle business just posted its first-ever quarter above the 100,000-unit mark, with 104,199 cars delivered — a 17.1 percent year-on-year jump that translated into 24.9 billion yuan in segment revenue. On the other, the smartphone division saw global shipments collapse by 26.5 percent to 31.2 million devices, dragging segment sales down 7.5 percent to 42.1 billion yuan.

The contrast has split the analyst community down the middle. Morgan Stanley reaffirmed its "Overweight" rating this week, pointing to the potential for positive margin surprises in the phone business. Bank of America, however, poured cold water on the EV story Thursday, publishing a research note that expects significantly lower vehicle deliveries for fiscal 2026 than the market has been pricing in.

That caution stands in sharp relief to the trajectory Xiaomi itself has charted. The company has already celebrated the 500,000th SU7 rolling off the line, and in the first seven months of the year it delivered 216,322 vehicles, up 14.8 percent. July alone saw 10,223 units of the new YU7 SUV hit the road. Goldman Sachs had penciled in 500,000 deliveries for the full year and projected the EV arm would exceed one million vehicles by 2028 — a forecast that now sits awkwardly against Bank of America's more restrained view.

The Memory-Chip Squeeze Behind the Smartphone Slump

The weakness in phones has less to do with Xiaomi's own execution than with a global pricing crisis in memory chips. DRAM and NAND component costs have climbed to historic highs, squeezing margins across the entire smartphone manufacturing chain. Yet Xiaomi managed to defend an 8.5 percent gross margin in the segment, leaning on record average selling prices — the figure hit 1,351 yuan (roughly $200) in the second quarter, a 25.9 percent improvement year on year.

That pricing discipline is what Morgan Stanley sees as the foundation for a potential upside surprise in the coming quarters. It's also central to Xiaomi's broader strategy of pushing into the premium tier, where software and services can bolster margins that hardware alone can no longer protect.

The company is betting heavily on that front. Its new HyperOS 4 operating system entered beta this week, promising AI-driven memory optimization that should stabilize video frame rates by 28.9 percent — the kind of feature designed to keep customers locked into the higher-margin premium ecosystem.

The Cost of Ambition

None of this comes cheap. Research and development spending reached 18.2 billion yuan in the first half, with the company guiding to more than 40 billion yuan for the full year. Those outlays underscore how much Xiaomi is leaning into technological leadership across both its core handset business and the capital-intensive EV expansion.

The auto division, for all its growth, remains deeply loss-making. The segment posted an operating loss of $385 million in the quarter, a reminder that scaling production and launching new models — including the "Sky Nomad" SUV line with range-extender technology unveiled in July — comes with significant financial drag. That third model series joins the SU7 and YU7 in a portfolio designed to address the "range anxiety" that analysts at Astrada Advisors flagged when they downgraded the stock from "Buy" to "Hold" in mid-July, citing concerns about the ambitious 550,000-vehicle annual target.

A Stock Caught Between Recovery and Reality

Group-level results paint a picture of a company still working through a rough patch. Total revenue fell 6.1 percent year on year to 108.9 billion yuan in the second quarter — the second consecutive quarterly decline, though the pace of contraction is slowing from the 10.9 percent drop seen in Q1. Sequentially, revenue actually grew 9.9 percent. Net profit slipped 20.3 percent to 9.5 billion yuan, while adjusted net profit rose 2.4 percent quarter on quarter.

The market's response has been muted but positive. The shares jumped on the results last Tuesday and have held onto an 8.3 percent gain since. On Thursday, the stock traded at 3.02 euros, marginally above Wednesday's close of 3.01 euros and 4.6 percent above its 50-day average. The seven-day picture shows a 6.3 percent advance.

Yet the longer-term chart tells a harsher story. The stock sits 54 percent below its 52-week high of 6.54 euros, down 48 percent over the past twelve months and 30 percent year to date. Xiaomi is trying to feed the turnaround narrative with concrete plans to expand into Europe in the second half of 2027, starting with right-hand-drive models — but whether delivery volumes outside China can match the domestic ambition remains an open question.

For now, investors are left weighing a company that is simultaneously firing on all cylinders in cars, defending its ground in phones, and spending heavily to do both. The divergent analyst views on the EV business suggest the road ahead will be anything but smooth.