Xiaomi's Two-Speed Engine: EV Deliveries Hit a Milestone While Phone Margins Face a Memory-Chip Squeeze

Xiaomi's EV deliveries hit record 104K in Q2, but operating loss triples; smartphone revenue falls 7.5% as memory costs soar.

The arithmetic at Xiaomi is getting harder to ignore. The company shipped 104,199 electric vehicles in the second quarter — the first time it has broken the six-figure mark in a single three-month stretch — yet the division that is generating all that momentum also produced an operating loss of roughly $385 million. Growth, in other words, is costing more than ever.

That tension was laid bare in the quarterly figures released on Tuesday. Revenue from the EV and AI segment climbed 16 percent year on year to 23.9 billion yuan, but the operating loss in that part of the business ballooned to 2.6 billion yuan — more than seven times the deficit recorded a year earlier. The first half of the year saw 185,100 vehicles handed over to customers, putting Xiaomi at roughly a third of its full-year target of 550,000 deliveries.

The company's third model line is now doing some of the heavy lifting. In July, Xiaomi unveiled "Sky Nomad," an SUV range featuring range-extender technology, joining the SU7 and YU7 in the lineup. The move is a direct response to so-called range anxiety, a concern that analysts at Astrada Advisors flagged when they downgraded the stock from "Buy" to "Hold" in mid-July, questioning whether the delivery target was realistic.

A Smartphone Business Selling Fewer, Pricier Devices

The picture across the rest of the group is more sobering. Smartphone revenue fell 7.5 percent to 42.1 billion yuan in the second quarter, with worldwide shipments dropping 26.5 percent to 31.2 million units. The culprit is largely external: DRAM and NAND prices have hit historic highs, and Xiaomi is now contending with a third round of price increases for memory components.

What stands out is how the company has absorbed that shock. Gross margin in the handset business held at 8.5 percent, even as the average selling price climbed to a record 1,351 yuan. Xiaomi is selling fewer phones but charging more for them — a strategy that protects profitability in the near term but carries the risk of ceding market share over time. Morgan Stanley, for its part, reaffirmed its "Overweight" rating on Wednesday and went further, predicting a positive margin surprise in the smartphone division in the quarters ahead.

The broader market context offers little comfort. Smartphone shipments across Europe fell 10 percent in the second quarter to 35 million units, the weakest showing in three years. Western Europe held up comparatively well, with Apple and Samsung still finding buyers, but the decline in Eastern Europe was markedly steeper. Consumers are balking at higher prices driven by component costs, and that hesitancy is rippling through the entire supply chain.

Group Numbers Tell a Story of Stabilization

The consolidated figures show a business that is still shrinking, though at a decelerating pace. Total revenue came in at 108.9 billion yuan, down 6.1 percent year on year — an improvement over the 10.9 percent decline in the first quarter, and the second consecutive quarter of negative annual comparison. Sequentially, revenue rose 9.9 percent against the prior quarter. Adjusted net profit fell 42.6 percent to 6.2 billion yuan, while the unadjusted net figure dropped 20.3 percent to 9.5 billion yuan.

Investors have chosen to focus on the brighter signals. Since the results landed on Tuesday, the stock has gained 9.1 percent, closing the latest session at 3.04 euros after a 6.5 percent weekly advance. The shares are trading 4.6 percent above their 50-day average, yet remain roughly 53 percent below the 52-week high of 6.54 euros reached in late September of last year.

The market's verdict, at least for now, is that the EV story and record phone pricing outweigh the immediate profit pressure. Whether that calculus holds depends on two variables: whether memory costs ease, and whether Xiaomi can keep converting its automotive ambition into deliveries without the losses spiraling further. The next few quarters will provide the answer.