Xiaomi's Munich R&D Hub Signals 2027 European EV Entry as Q1 Profit Collapses 43% on Chip Costs and Vehicle Losses

Xiaomi's Q1 2026 revenue fell 11% to 99.1B yuan as EV losses deepened and chip costs squeezed margins, while internet services and EV demand offered bright spots. Analysts are split on the stock.

The electric vehicle race just got a new European contender — but beating the clock is proving costly. Xiaomi has opened a research and development center in Munich, poaching talent from Porsche, Lamborghini and Mercedes-Benz as it maps out a market entry by 2027. The long-range ambition, however, sits uncomfortably alongside a first-quarter earnings report that shows a company under siege from rising chip prices and its own money-losing EV division.

For the three months ended March 2026, Xiaomi posted revenue of 99.1 billion yuan, down nearly 11% from a year earlier. While analysts had braced for a miss, the adjusted net profit of 6.1 billion yuan beat their consensus estimate of 6.4 billion — a thin silver lining on a 43% year-on-year slump. Operating profit (EBIT) fared even worse, dropping 70%.

The smartphone business, long Xiaomi’s cash cow, is caught in a pincer movement. On one hand, the company’s push into higher-priced devices is working: the average selling price rose 8.2% to a record 1,310 yuan. On the other, shipments slipped 19% to 33.8 million units — the steepest decline among the world’s top five vendors, according to Jefferies. The culprit? Soaring DRAM and NAND flash memory costs, which have roughly doubled as AI data centers vacuum up supply. The gross margin for the core “Smartphone × AIoT” segment shrank to 22.5%.

There is one bright spot. Internet services — chiefly advertising — generated 7.1 billion yuan in revenue, up almost 8% from the prior year, and boast a gross margin above 76%. That stark contrast with the hardware divisions highlights the divergent profit profiles inside the group.

Xiaomi’s EV business remains the biggest drag. The company delivered 81,000 vehicles in the quarter, down from 145,000 in the previous period, as production of the premium SU7 Ultra slowed. Segment revenue reached 19.9 billion yuan, but the operating loss stood at 3.1 billion yuan — equivalent to roughly $5,600 per vehicle sold. Gross margin in the EV unit fell to 20.1% from 23.2%, squeezed by lower volumes, purchase tax subsidies in China and rising component costs.

Yet the product pipeline is building momentum. The new YU7 SUV, priced from 233,500 yuan — squarely targeting Tesla’s Model Y — has racked up 232,000 cumulative deliveries in its first ten months. Meanwhile, the revamped SU7 sports sedan had attracted over 80,000 firm orders by early May. To support production, Xiaomi has developed its own aluminum alloy for “giga-casting” machines, a technique CEO Lei Jun says only Tesla and his company have mastered. It reduces welding points and improves efficiency.

The contrasts are sharp enough to divide the analyst community. On May 26, Jefferies downgraded the stock to “Underperform” and slashed its price target by 14% to 25.49 Hong Kong dollars, citing the triple threat of EV losses, smartphone margin erosion and soaring memory chip costs. Goldman Sachs, by contrast, maintains a “Buy” rating with a target of 40 HKD. The consensus among analysts is “Buy” with a 12-month target of 42.06 HKD.

On the Frankfurt exchange, Xiaomi’s depositary receipts closed at €3.13 — a 12-month low and 53% below the 52-week peak of €6.69. The stock has shed 46% over the past year and nearly 30% year to date. In response, the company has been buying aggressively: it has repurchased shares worth around 8.4 billion Hong Kong dollars so far in 2026, more than it did in all of 2025.

The outlook remains clouded. Jefferies expects memory chip costs to stay elevated deep into 2027, and it has trimmed its full-year EV delivery forecast to 495,000 units — below management’s own target of 550,000. Whether Xiaomi can turn its European ambitions into a growth engine will depend on how quickly it can stabilize margins and ramp up deliveries, even as it burns cash to build an automotive brand from scratch.