Xiaomi's Two-Speed Story: Pricing Power in Phones, Price War in Cars

Xiaomi shares drop 56% from peak amid EV margin pressure, Q1 profit down 43%, Q2 forecasts similar decline, signaling structural challenges.

There is a peculiar tension running through Xiaomi's current market narrative. The company that once defined itself purely through smartphones and consumer electronics is now trying to convince investors it can conquer the Chinese mobility market — while the stock price tells a far less flattering tale.

The numbers are stark. Since hitting a 52-week high of 6.54 euros last September, the shares have lost 56 percent of their value. On a twelve-month basis, the equity has more than halved. Year-to-date, the decline stands at 34 percent. The current price of 2.86 euros, down 1.9 percent from the previous session, sits barely above the 50-day moving average of 2.89 euros and well beneath the 200-day average — a technical configuration that keeps the medium-term trend pointed firmly downward.

A Launch That Fell Flat

The market's skepticism was on full display in late July when Xiaomi unveiled its SkyNomad SUV series, a product line designed to showcase the company's ambitions in China's fiercely competitive electric vehicle segment. The launch was a technological statement — spacious interiors, configurable cabins, a clear bid for the mass market.

The reaction was anything but celebratory. In Hong Kong, the stock tumbled as much as 11 percent on the day, closing 7.3 percent lower. Observers pointed to concerns about the pricing strategy for the new models. Building a volume product for the Chinese market apparently means accepting margin compromises, and investors were quick to signal their unease.

Notably, the sell-off came on the same day that Macquarie upgraded Xiaomi from "Neutral" to "Outperform" with a price target of 38.43 Hong Kong dollars. The juxtaposition captures the divide within the analyst community: some see the long-term strategic logic of the mobility push, while the market's immediate reaction suggests deep reservations about what it will cost.

The Margin Question Takes Center Stage

That cost is now the central issue. In the first quarter of 2026, Xiaomi's adjusted net profit fell 43.1 percent to 6.07 billion yuan, while GAAP net income dropped 57 percent to 4.72 billion yuan. The overall gross margin came in at 22.0 percent.

The second quarter is expected to tell a similar story. China International Capital Corporation (CICC), in a note dated August 3, projects revenue of 107.14 billion yuan — a decline of 7.6 percent — and adjusted net profit of 6.114 billion yuan, down 43.6 percent year on year. The near-identical magnitude of the projected decline to the first quarter's actual figures is what worries investors most: this is beginning to look structural rather than cyclical.

What makes the picture more complicated is the divergence between Xiaomi's two core businesses. In early August, the company raised prices on its flagship smartphones — evidence that it retains pricing power in its traditional stronghold. The EV segment tells the opposite story, with competitive pressure forcing the company into margin concessions almost from day one. This two-speed dynamic — stable profitability in phones, persistent price pressure in mobility — is likely to define the coming quarters.

What the Bulls Are Watching

For those inclined toward optimism, there are reasons to look beyond the immediate earnings pain. CICC maintained its "Outperform" rating despite the weak forecast, suggesting its analysts view the profit decline as temporary, driven largely by upfront investment costs.

The company's international expansion continues apace. At the IFA trade show in September 2026, Xiaomi plans to present its "Human × Car × Home" ecosystem to a European audience for the first time. The company has also announced investment plans of 7.4 billion euros in AI research and development spanning 2026 to 2028. A potential September launch of the flagship smartphone series 18 in China could provide fresh revenue momentum, and unconfirmed reports of talks between Stellantis and Xiaomi about possible automotive cooperation add a speculative element to the story, though these remain rumors.

If the second-quarter gross margin holds at around the 22 percent level from the first quarter, the market could interpret that as a sign of bottoming — a necessary precondition, though hardly a guarantee, of a sustained recovery.

The Bear Case

The risk scenario is equally clear. A gross margin below the first-quarter level, or a net profit decline steeper than CICC's projection, would reinforce the thesis of a structural margin problem. Intensifying price competition in the EV segment and rising costs associated with the European expansion — which have yet to generate corresponding revenue — are the two most likely culprits.

The technical picture adds to the nervousness. A break below the recent intermediate low would confirm the downward momentum. The HyperOS 4 update slated for September, whose beta phase is only now beginning in China, is not yet a reliable catalyst — it remains an announcement rather than a delivered product.

The August 18 Reckoning

That brings the focus to August 18, when Xiaomi is expected to report its second-quarter results. This is the first genuine test of whether the company's transformation story can withstand the scrutiny of actual numbers.

The market has already priced in considerable negativity. The question is whether the actual results will undercut those expectations further or offer the first hint of stabilization. If the gross margin comes in near the first quarter's 22 percent and the profit decline lands within CICC's forecast range, that could be read as tentative evidence that the worst is over. If the margin deteriorates more sharply, the downtrend is likely to continue, with clarity only arriving later — at the September IFA presentation and the potential flagship phone launch.

Until then, the margin remains the narrow gate through which every assessment of this stock must pass. The smartphone business demonstrates that Xiaomi can still command pricing power where it has deep expertise. The EV division shows what happens when that expertise is applied to a new battlefield with established, aggressive competitors. Reconciling those two realities is the challenge that will define the stock's trajectory in the months ahead.