Xiaomi's Two-Speed Engine: EV Milestones Mask a Profit Squeeze That Has Investors Wary

Xiaomi's Q2 profit fell 42.6% on memory-chip costs, but EV deliveries hit 500k in 28 months. Stock down 34% YoY.

The numbers out of Beijing this week tell two very different stories about Xiaomi, and the market is struggling to decide which one matters more. On one side sits a smartphone business squeezed by memory-chip inflation; on the other, an electric-vehicle division that just crossed a symbolic threshold few rivals have managed.

The headline figure was ugly enough to spook traders. Adjusted net profit for the second quarter tumbled 42.6 percent to 6.22 billion yuan, missing the consensus estimate of 6.31 billion yuan. Group revenue slipped 6.1 percent to 108.92 billion yuan, dragged down by a core devices business that shipped 26.5 percent fewer handsets — 31.2 million units — while the average selling price climbed to a record 1,351 yuan. Gross margin in the handset division contracted from 11.5 percent to 8.5 percent.

That margin erosion is the crux of the bear case. Xiaomi's phone segment, which still contributes the lion's share of group revenue, is being squeezed by soaring memory-chip prices — a cyclical headwind hitting the entire industry rather than a structural demand problem. The sequential picture reinforces the concern: first-quarter handset shipments had already fallen 19.2 percent year on year, and the smartphone and IoT gross margin had dropped to 10.1 percent.

Yet the EV story keeps compounding. The auto and AI division grew revenue 17.1 percent to 24.9 billion yuan, with vehicle deliveries up 28.2 percent to 104,199 units. The SU7 sedan has now passed 500,000 cumulative deliveries in just 28 months — a pace no other Chinese EV model priced above 200,000 yuan has matched. In July alone, the SU7 accounted for 67.3 percent of all EV deliveries. The unit still burns cash, posting an operating loss of 2.6 billion yuan in the quarter, but that is the price of entry in a capital-intensive field where Xiaomi is scaling fast.

The market's response has been telling. The stock changed hands at 2.72 euros at the time of writing, down 5.2 percent on the day, though the secondary report shows it hovering around 2.86 euros — near its 50-day average of 2.88 euros. Either way, the longer-term picture is stark: the shares have lost more than half their value since the 52-week high of 6.54 euros set in September 2025, and are down 34 percent over the past year. The stock sits 21 percent below its 200-day moving average, with 30-day volatility elevated at 55 percent.

What explains the disconnect between operational momentum and share-price pain? Part of it is a broad de-rating of Chinese tech equities. Part of it is Xiaomi-specific: investors are asking whether the EV division can offset the smartphone margin squeeze before the core business erodes further. The first-quarter auto and AI segment posted a loss of 3.1 billion yuan, and average vehicle prices slipped 1.3 percent to 235,116 yuan — a sign of pricing pressure in China's brutally competitive EV market.

Management is betting big on the transition. Research and development spending rose 18.9 percent to 9.2 billion yuan in the quarter, with at least 16 billion yuan earmarked for AI investments this year and more than 60 billion yuan planned over three years. The company's open-source MiMo-V2.5-Pro model is positioned, by its own account, at the global frontier — a potential gateway to higher-margin software and internet services, where gross margins already stand at a robust 76.1 percent. A cash pile exceeding 219 billion yuan (more than 220 billion in the secondary report) provides ample runway, and a 20 billion Hong Kong-dollar buyback program signals management's view that the equity is undervalued.

The bull case rests on the EV trajectory. Xiaomi sold more than half as many electric vehicles in the first half of 2026 as Volkswagen delivered worldwide in all of last year. The company targets over 500,000 total vehicle deliveries for 2026, with an international launch planned for 2027 — the SU7's European debut is seen as the next major catalyst. A new SkyNomad SUV is slated to join the lineup from September.

The bear case is equally concrete. Reaching that 550,000-unit annual target would require more than doubling the delivery pace seen in the first seven months, when SU7 and YU7 combined reached roughly 216,000 units. The smartphone decline is accelerating, not stabilizing. And the EV division, while growing, has yet to prove it can turn a profit.

With the relative strength index at 43.1, the stock is neither overbought nor oversold — a reflection of a market that has yet to fully price in which of Xiaomi's two engines will ultimately dominate. The coming quarters, and particularly the international EV rollout, will determine whether today's valuation looks like a buying opportunity or a warning that went unheeded.