Xiaomi’s profits slump amid rising component costs and EV losses, as smartphone decline deepens

Xiaomi reports a 42.6% drop in second-quarter profit as rising component prices and stiff competition erode margins, intensifying pressure on its smartphone and EV ventures amidst shrinking sales and rising start-up losses.

Xiaomi said second-quarter profit fell sharply as surging memory and other component costs squeezed margins across its core device business, underscoring the pressure facing one of China’s best-known technology groups. According to Reuters, adjusted net profit dropped 42.6% to 6.2 billion yuan for April to June, below the 6.6 billion yuan expected by analysts polled by LSEG, while revenue of 108.9 billion yuan also came in short of forecasts. The company said heavier input costs and tougher competition had weighed on performance.

The weakness was most visible in smartphones, the business that still supplies the bulk of Xiaomi’s sales. Revenue from handsets fell 7.5% from a year earlier to 42.1 billion yuan, and gross margin narrowed to 8.5% from 11.5%, Reuters reported. Omdia said Xiaomi shipped 31.2 million smartphones in the quarter, down 26% year on year and the second straight quarterly decline, leaving it especially exposed to memory-price inflation because many of its devices sit below the $200 mark.

Against that backdrop, Xiaomi’s push into electric vehicles remains strategically important but financially painful. Reuters said EV revenue reached 23.9 billion yuan in the quarter, up 15.9% from a year earlier, while the operating loss tied to its EV, AI and other new businesses was 2.6 billion yuan. Earlier reporting on Xiaomi’s vehicle arm showed a pattern of rapid volume growth paired with heavy start-up losses, with the company’s automotive unit still losing money even as deliveries and average selling prices rose.

Xiaomi delivered 104,199 vehicles in the quarter, up 28.2% year on year, and in July it introduced a new SkyNomad SUV line as it broadened beyond sedans and crossovers. The company is also seeking to deepen its overseas ambitions, with plans to enter European markets in 2027. For now, however, the central challenge remains the same: Xiaomi must absorb higher component costs in smartphones while funding a capital-intensive vehicle business that is still some way from profitability.