Xiaomi’s Twin Drag: Chip Squeeze and EV Bleeding Trigger Jefferies Downgrade as Shares Hit 12-Month Low

Jefferies slashes Xiaomi to Underperform, cuts price target to HK$25.49 after Q1 miss; EV losses deepen, smartphone margins shrink, memory costs surge.

The bear case on Xiaomi is hardening. Jefferies has slashed its rating on the stock to Underperform and lopped 14% off its price target, cutting it to 25.49 Hong Kong dollars, after first-quarter figures that missed even already-subdued expectations. The broker pointed to three simultaneous pressures: a deepening loss in the electric-vehicle business, shrinking smartphone margins, and a surge in memory-chip costs that shows no sign of abating before late 2027. In Frankfurt, Xiaomi’s depositary receipts sank to €3.13 – the lowest level in twelve months and a whisker above the 52-week trough of €3.14. Over the past year the stock has shed 46%, leaving it more than 50% below its peak of €6.69.

The numbers behind the downgrade paint a stark picture. Revenue fell for the first time in nearly three years, dropping almost 11% to 99.1 billion yuan. Adjusted net profit plunged 43% to 6.1 billion yuan, undershooting the consensus forecast of 6.4 billion yuan. The reported net profit took an even bigger hit, collapsing 57% to 4.7 billion yuan. Operating profit (EBIT) tumbled 70%. The culprit is largely external: the cost of DRAM and NAND flash memory has roughly doubled as AI data centres soak up supply, squeezing the gross margin of Xiaomi’s core “Smartphone × AIoT” segment to just 22.5%.

Smartphone shipments – still the company’s main revenue engine – contracted 19% to 33.8 million units, the steepest decline among the top five global manufacturers, according to analysts. The AIoT division added to the pain with a 24% revenue drop, dragged down by weak consumer demand in China and intensifying competition. Some relief came from international markets, which now account for about 40% of AIoT sales, and from internet services: advertising revenue rose nearly 8% to 7.1 billion yuan, delivering a gross margin above 76% that stands in sharp contrast to the loss-making hardware segments.

The electric-vehicle business, once hailed as Xiaomi’s next growth engine, is now its biggest cash drain. In the first quarter the unit delivered 80,856 cars, a 6.6% increase from the previous period, generating roughly 20 billion yuan in revenue. But operating losses widened to 3.1 billion yuan, or about $5,600 per vehicle, after two quarters of breakeven. The slide was driven by a drop in sales of the higher-margin SU7 Ultra, purchase-tax subsidies that depressed prices, and rising component costs. Gross margin in the auto business fell from 23.2% to 20.1%. Xiaomi’s management is sticking with its ambitious 2026 delivery target of 550,000 vehicles, but Jefferies has trimmed its own forecast to 495,000. That would require monthly sales averaging around 55,000 from May through December – well above the current record of 50,000, set last December.

To revive momentum, Xiaomi unveiled the YU7 GT in May, a high-performance SUV starting at 389,900 yuan with a dual-motor system producing 990 horsepower. The company is touting a lap record at the Nürburgring Nordschleife to cement its credentials. The timing is deliberate: sales of the standard YU7 slipped 27.2% in April to 9,876 units, and the GT is meant to inject fresh demand at the premium end while lifting the profile of the model family.

Meanwhile, Xiaomi is forging ahead with its European entry, scheduled for the second half of 2027, followed by right-hand-drive markets in early 2028. A new research and development centre in Munich, staffed by about 50 engineers and designers recruited from BMW, Porsche, Lamborghini and Mercedes-Benz, will serve as the bridgehead. The site is led by Rudolf Dittrich, a former BMW motorsport engineer who worked on the M4 GT3 programme. Yu Liguo, vice president of the automotive division, is heading the overseas expansion group, while Song Gang, previously a Tesla factory manager in Shanghai, takes charge of production and manufacturing processes.

Despite the earnings pressure, Xiaomi is not pulling back on investment. Research and development spending rose 33.4% year-on-year to 9.0 billion yuan. The company now employs more than 26,000 R&D staff and holds over 47,000 granted patents. The long-term commitment remains intact: 200 billion yuan over five years, with more than 60 billion yuan earmarked for artificial intelligence over three years. Whether that bet will pay off depends on how quickly Xiaomi can stabilise smartphone margins, narrow the car unit’s losses, and push monthly EV deliveries towards the required run-rate. If the next set of results – expected in August – fails to show progress, the European expansion may remain a strategic talking point but will add another layer of strain on an already bruised stock.