Xiaomi's Cost Crunch: Memory Price Surge Tests Pivot to Cars and AI

Xiaomi shares plummet near 52-week low after memory chip prices surge 300%, gutting smartphone margins. The firm hikes phone prices and pivots focus to EVs and AI.

Xiaomi shares fell sharply on Thursday, shedding 4.72 percent to close at EUR 3.42. The drop leaves the stock a mere 0.22 percent above its 52-week low, reflecting investor anxiety over a severe profitability squeeze in its core smartphone business. The primary culprit is a dramatic spike in memory chip costs, a headwind management expects to persist through the first half of 2026.

The numbers are stark. Prices for essential 16Gb DDR5 memory modules skyrocketed by nearly 300 percent between September and December 2025. This component cost explosion has gutted hardware margins. Consequently, the smartphone division's contribution to the company's total gross profit has collapsed from over 40 percent to just 15.1 percent in the span of two years.

In a direct response to these soaring procurement costs, Xiaomi's President Lu Weibing announced price increases for existing models, effective April 11. The hikes target memory-intensive configurations, with variants featuring 16GB of RAM and 1TB of storage seeing increases of up to 1,500 Chinese Yuan. This move coincides with the upcoming China launch of the new Redmi K Pad 2, an 8.8-inch tablet powered by a MediaTek Dimensity 9500 chipset, set for late April.

The company's strategic pivot away from this pressured core is accelerating. While smartphones falter, the electric vehicle (EV) and artificial intelligence (AI) segment now contributes close to 35 percent of total gross profit. Xiaomi's EV unit reported its first positive operating profit in the full year 2025, a year in which the group achieved record revenue of 457.3 billion RMB. For 2026, the target is to deliver 550,000 electric vehicles.

To support this transformation, Xiaomi is committing enormous resources. Research and development spending for the current year is budgeted at over 40 billion RMB, with 16 billion earmarked specifically for AI and new initiatives. This is part of a broader five-year R&D budget exceeding 200 billion RMB, which includes plans to invest at least 60 billion in AI research over the next three years.

The build-out includes strategic hires, such as the recruitment of Dieter Lorenz, a former Tesla manager who spent six years building the automaker's logistics networks in Central Europe. Lorenz now oversees operational infrastructure for Xiaomi's European market entry for vehicles.

Despite the long-term strategic push, near-term stock performance remains challenged. The share price currently trades roughly 46 percent below its 52-week high of EUR 6.69. All eyes are now on the quarterly results due in late May, which will provide a critical data point on whether the implemented price adjustments can offset the severe cost inflation. If they cannot, the expensive expansion into automobiles may continue to weigh on overall profitability.