Xiaomi's Two-Track Recovery: EV Milestones Mask a Profit Puzzle

Xiaomi shares rally 11% weekly as EV margins hit 19.2% and sequential profit doubles, offsetting smartphone revenue decline.

There is a peculiar tension at the heart of Xiaomi's current market narrative. The stock has just delivered its strongest weekly performance in months, yet the company's headline numbers tell a story of contraction. Resolving that contradiction is what investors are now attempting, and the answer hinges on which of Xiaomi's two businesses — the mature smartphone operation or the capital-hungry electric vehicle division — deserves the benefit of the doubt.

The share price closed Friday at €3.16, up 3.9 percent on the day and 11 percent higher over the course of the week. The move carried the stock back above its 100-day moving average, a technical threshold that chart watchers read as a constructive short-to-medium-term signal. The rally has been building for a while: over the past 30 days, the equity has gained 6.0 percent, and it now sits 9.2 percent above its 50-day average. That said, it remains 12 percent below the 200-day line, a reminder that the longer-term trend has yet to flip.

The Quarter That Rewards a Closer Look

The catalyst for the surge was Xiaomi's second-quarter 2026 results, published on August 18. On a year-over-year basis, the figures look unflattering: revenue slipped 6.1 percent to 108.92 billion yuan, while adjusted profit tumbled 42.6 percent. Investors chose to look past those comparisons, however, and the reason becomes clear when the sequential data enters the frame. Earnings per share more than doubled quarter on quarter, climbing from 0.18 yuan to roughly 0.37 yuan, suggesting the first three months of the year marked the operational trough.

The market's willingness to reward the stock despite the headline decline reflects a broader judgment: that the year-over-year drop is a function of a tough base period and rising input costs, not a deterioration in underlying momentum. Adjusted profit for the quarter came in at 6.2 billion yuan on revenue of 108.9 billion yuan, figures that Morgan Stanley highlighted in a research note on August 19 as evidence of resilience in the smartphone franchise.

That resilience, however, has its limits. Gross margins in the handset business compressed to 8.5 percent as memory chip prices climbed — the familiar Xiaomi bind of operating a high-volume, low-margin enterprise that generates cash flow while the company funnels investment elsewhere.

The EV Engine Gathers Speed

That "elsewhere" is where the more compelling story resides. Xiaomi's Smart EV and new initiatives segment delivered 104,199 vehicles in the quarter, and the automotive division posted a gross margin of 19.2 percent — a notable figure for a manufacturer still in its relative infancy. The broader milestone is even more striking: cumulative deliveries of the SU7 sedan have now surpassed 500,000 units within 28.5 months of launch, a production cadence that upends the traditional automotive timeline.

The segment remains operationally loss-making, weighed down by heavy spending on AI infrastructure and development. Xiaomi is effectively building a second company within the first, with all the associated costs. A liquidity position of roughly 219 billion yuan provides ample runway, though, and in a volatile technology market, that balance-sheet strength is itself a form of reassurance.

The company is also broadening its automotive lineup. A new model series called "SkyNomad" is slated for September, an attempt to reduce dependence on a single vehicle type. Further out, media reports suggest the SU7 could reach Germany in 2027, positioning Xiaomi directly against European premium brands — a far more demanding competitive environment than the domestic Chinese market, where aggressive pricing and speed have been sufficient weapons. In Europe, brand perception, service networks and certification regimes carry weight that established manufacturers have spent decades accumulating.

A Recovery That Remains Incomplete

For all the recent enthusiasm, the stock's trajectory this year has been punishing. The shares remain down 27 percent since January and have lost 44 percent over the past twelve months. At €3.16, the equity trades 52 percent below its 52-week high of €6.54, though it has climbed 35 percent off the June low. Market capitalization stands at €76.72 billion.

The technical picture offers a mixed read. The relative strength index sits at 57, indicating neither overbought nor oversold conditions. But the annualized volatility of 61 percent over the past month underscores that Xiaomi remains a high-octane holding, and sentiment among retail investors is described as merely neutral.

The central question is whether the sequential improvement in profitability can be sustained. The third-quarter report, due November 24, will provide the first test of whether the EV division can hold its margin while the smartphone business continues to absorb memory-chip cost pressure. If the answer is yes, the current rally has the makings of a genuine recovery. If not, the stock could quickly find itself back in the grip of the longer-term downtrend from which it has only just begun to emerge.