Xiaomi's Two-Front Battle: Margin Squeeze in Cars, Pricing Power in Phones

Xiaomi's Q2 2026 results set to show sharp profit drop amid EV launch costs and margin pressure, despite solid smartphone and EV sales.

When Xiaomi unveils its second-quarter results on August 18, the numbers will tell a story that investors have already begun to price in — and it is not a pretty one. The Beijing-based electronics and electric vehicle group is heading for one of the weakest quarterly reports in its recent corporate history, with the pain concentrated exactly where its newest ambitions lie.

China International Capital Corporation projects revenue of 107.14 billion yuan for the April-to-June period, a 7.6 percent decline year-on-year. The adjusted net profit figure is far more sobering: 6.114 billion yuan, representing a 43.6 percent plunge. The brokerage nonetheless maintained its "Outperform" rating on the stock in its August 4 forecast, a sign that even the bears in the analyst community see value beneath the deteriorating income statement.

The deterioration is not new. The first quarter of 2026 set the template: group revenue fell 10.9 percent to 99.1 billion yuan, adjusted net profit dropped 43.1 percent to 6.07 billion yuan, and on a GAAP basis the bottom line collapsed 57 percent to 4.72 billion yuan. Gross margin came in at 22.0 percent. What makes the trend particularly galling for management is that the underlying businesses are actually performing respectably — the problem lies in what it costs to keep them growing.

The smartphone division shipped 33.8 million units in the first quarter at a record average selling price of 1,310 yuan, while the EV segment delivered 80,856 vehicles, up 6.6 percent. The profit implosion, in other words, is not a demand problem. It is a cost and margin problem, and nowhere is that more visible than in the company's freshly launched automotive lineup.

A Launch That Fell Flat

Late July brought Xiaomi's SkyNomad SUV series to market — a product with generous interior space and a flexibly configurable cabin, positioned as a technological statement for the Chinese mobility market. The market's response was anything but celebratory. On the Hong Kong exchange, the stock slid as much as 11 percent intraday on launch day before closing 7.3 percent lower. Observers pointed to concerns over the new models' pricing structure, with the market apparently bracing for margin concessions in a segment where volume ambitions collide with profitability realities.

That skepticism has been compounded by the stock's broader trajectory. From its 52-week high of 6.54 euros set in September of last year, the shares have shed roughly 56 percent of their value. The stock traded at 2.86 euros in recent sessions, down 1.7 percent on the day, with a 34 percent decline on a year-to-date basis. Over the trailing twelve months, the share price has more than halved.

Buybacks as a Backstop

Against this backdrop, management has deployed the standard toolkit of a company convinced its equity is undervalued. Between July 2 and July 15, Xiaomi repurchased approximately 79.8 million of its own shares in 14 tranches — equivalent to 0.31 percent of share capital — at prices ranging from 25.82 to 28.65 Hong Kong dollars. The buyback program, worth 20 billion Hong Kong dollars and launched at the end of May, replaced an earlier scheme that had seen roughly 14.6 billion Hong Kong dollars in repurchases. A lock-up period on new share issuance runs until August 14.

The message to the market is unambiguous: despite the operational weakness, the board considers the stock cheap. Whether that conviction is shared by investors will be tested when the second-quarter numbers land.

Diverging Analyst Views

The analyst community is split on Xiaomi's trajectory. On July 30 — the very day the SkyNomad series was unveiled — Macquarie upgraded the stock from "Neutral" to "Outperform" with a price target of 38.43 Hong Kong dollars. The timing was notable: at least one major house saw the mobility push as a reason for optimism even as the market sold off.

The company, meanwhile, is signaling confidence in its core business. In early August, Xiaomi raised prices on its flagship smartphones — evidence that pricing power remains intact in the handset division even as the SUV segment appears to be fighting the opposite battle. This split personality — stable margins in phones, price pressure in mobility — is likely to define the coming quarters.

Europe and AI as the Longer Game

The company is also looking westward. At the IFA trade fair in September, Xiaomi plans its debut, presenting its ecosystem under the banner "Human × Car × Home" alongside multiple product launches aimed at the European market. The company has also committed investments of 7.4 billion euros in AI research spanning 2026 through 2028, according to Handelsblatt.

In the automotive arena, reports have circulated about talks between Stellantis and both Xiaomi and Xpeng regarding potential stakes in European brands and production capacity. Should those discussions bear fruit, they would represent a significant escalation of Xiaomi's vehicle ambitions beyond China's borders.

For now, though, the immediate test is August 18. The question hanging over the stock is whether buyback programs and a long-term growth narrative in Europe and electric vehicles can offset the margin erosion eating into the core business. The answer will arrive in the form of a quarterly report — and investors have already shown they are not inclined to wait for it.