Xiaomi’s EV Business Bleeds 3.1 Billion Yuan as Chip Prices Smother Smartphone Margins — Jefferies Cuts Target

Xiaomi's EV segment posts $5,600 loss per vehicle, smartphone revenue falls 12.5%, and adjusted net profit plunges 43% — Jefferies downgrades to Underperform.

The honeymoon is over for Xiaomi’s electric-vehicle venture. After two quarters of operating profit in the auto segment, the red ink has returned with force — and it arrives alongside a deepening slump in the company’s core smartphone and AIoT businesses. The dual pressure has sent shares to a 12-month low and triggered a swift downgrade from Jefferies, which slashed its price target by 14% to HK$25.49 and placed the stock on “Underperform.”

First-quarter 2026 results published this week laid bare the extent of the damage. Group revenue fell 10.9% year on year to 99.1 billion yuan, well short of the consensus estimate of 103.4 billion yuan. Adjusted net profit tumbled 43.1% to 6.1 billion yuan — undershooting even the 6.4 billion yuan analysts had braced for. Operating profit (EBIT) suffered an even steeper 70% contraction, as cost pressures mounted across almost every business line.

The biggest headache remains the EV business. Xiaomi’s electric-vehicle segment generated 19.9 billion yuan in revenue, a modest 6.9% increase, but posted an operating loss of 3.1 billion yuan — equivalent to roughly US$5,600 for each of the 80,856 vehicles delivered. The gross margin slipped from 23.2% to 20.1%, undermined by purchase-tax subsidies, rising component prices, and a shift in product mix as fewer high-margin SU7 Ultra units rolled off the line. Deliveries grew just 6.6% year on year, a sharp deceleration from the previous quarter’s pace of 145,000 units.

Smartphones, still the company’s main revenue engine, are caught between shrinking volumes and soaring input costs. Xiaomi shipped 33.8 million handsets in the quarter, down 19% from 41.8 million a year earlier, pushing smartphone revenue 12.5% lower to 44.3 billion yuan. The company deliberately dialled back sales of entry-level and mid-range models, lifting the average selling price by 8.2% to 1,310.1 yuan. But that premium push came just as the cost of DRAM and NAND memory chips — a key component — roughly doubled, driven by insatiable demand from AI data centres. The result was a sharp squeeze on the “Smartphone × AIoT” gross margin, which slumped to 22.5%.

The pain extended to the broader AIoT ecosystem, where revenue dropped 24% as weak consumer spending in China and intensifying competition took their toll. A partial buffer came from overseas markets, which now account for roughly 40% of AIoT sales.

One bright spot stood out. Xiaomi’s internet services division — primarily advertising — grew revenue nearly 8% to 7.1 billion yuan, sustaining a gross margin above 76%. The contrast with the hardware segments could hardly be starker. Yet even that cash engine is not enough to offset the combined drag from EV losses and memory-chip inflation.

Management is betting big on new metal. On May 21, Xiaomi unveiled the YU7 GT at 389,900 yuan and the YU7 Standard at 233,500 yuan, hoping the SUV additions will generate the scale needed to shrink the operating deficit. The company reiterated its full-year delivery target of 550,000 vehicles, though Jefferies has trimmed its own forecast to 495,000 units. After four months, cumulative deliveries stand at just over 109,000, meaning the pace will have to accelerate sharply in the coming quarters.

To fund the push, research and development spending surged 33% to 9 billion yuan in Q1. But with chip costs expected to remain elevated well into 2027 and EV cash burn continuing, the margin for error is razor-thin. Xiaomi’s Hong Kong-listed stock closed near a one-month low of HK$28.88 after the release, while the Frankfurt-listed depositary receipts slipped to €3.13 — within striking distance of their 52-week trough. The shares have shed roughly 30% since the start of the year and stand nearly 54% below their 52-week peak of €6.69. The market is asking how much patience it can afford to have.