Xiaomi's Chip Cost Squeeze and EV Bleeding Overwhelm Record Buyback as Shares Hit New Lows

The numbers coming out of Xiaomi's first-quarter report read like a study in contradictions. The company's EV division shipped 117,558 vehicles in the first four months of 2026, up 12.5% year-on-year. Yet for every car sold, the automaker is now burning through roughly $5,600 in operating losses – more than six times the $900 per vehicle it lost a year earlier. That bleeding, combined with a spectacular surge in memory-chip prices, has produced the deepest profit slump the company has suffered in years.

Net income for the January-to-March period tumbled 57% to 4.7 billion renminbi. On an adjusted basis, removing one-off items, profit fell 43% to 6.1 billion renminbi – missing the analyst consensus of 6.4 billion renminbi. Group revenue slipped 10.9% to 99.1 billion renminbi. The stock, meanwhile, closed Friday in Frankfurt at €3.08, a new 52-week trough, leaving the shares down 31.4% since the start of 2026 and nearly 46% lower over the past twelve months.

The culprit hammering the core smartphone business sits deep in the supply chain. LPDDR5 DRAM prices have surged 151% year-on-year, while NAND flash costs have exploded by 360%, driven by insatiable demand from AI data centers. Xiaomi's problem is that roughly 60% of its phones sell for under $200, leaving almost no room to pass those increases on to consumers. The damage is clear: smartphone shipments sank 19% to 33.8 million units – the steepest decline among the top five global manufacturers, according to research firm Omdia. Revenue from the handset division dropped 12.5% to 44.3 billion yuan, and segment gross margins fell to 10.1%. Chief executive Lei Jun has warned the chip-cost headwind will likely persist for another two years.

Should investors sell immediately? Or is it worth buying Xiaomi?

Management is not waiting idly. On the day after the stock touched its 52-week low in Hong Kong, Xiaomi bought back 10.5 million of its own shares in a single session, costing roughly 298 million Hong Kong dollars. That was the first deployment of a freshly authorized buyback program worth HK$20 billion (about US$2.55 billion), which takes effect on June 2 and runs for twelve months. The company had already repurchased approximately HK$8.4 billion in shares this year – more than in all of 2025 – and its previous program had withdrawn 399.6 million shares for HK$14.6 billion by May 26. So far, none of that buying has stemmed the slide.

The electric-vehicle business continues to burn cash even as it grows. The EV and AI segment posted an operating loss of 3.1 billion yuan in the first quarter, reversing a rare annual profit achieved in 2025. Xiaomi still aims to deliver 550,000 EVs in 2026, a 34% increase from last year, after handing over 80,856 vehicles in Q1 alone. The next big growth catalyst is Europe: the company plans to enter the market in the second half of 2027, starting with Germany, followed by right-hand-drive markets such as the United Kingdom, Japan, Australia, and India from the first half of 2028. President William Lu Weibing described the surge in memory costs as a "new normal" but predicted some relief from the third quarter.

Analysts are split on the outlook. Jefferies downgraded Xiaomi from "hold" to "underperform" and cut its price target to 25.49 Hong Kong dollars from 26.98, citing sustained earnings pressure that could last well into 2027. Goldman Sachs, by contrast, maintains a "buy" rating with a target of HK$40, and the consensus among analysts also stands at "buy" with a 12-month target of HK$42.06.

The third-quarter results, due in August, will be the first real test of whether new smartphone launches can cushion the blow from memory costs. For now, Xiaomi is placing its bets on a record buyback program and the long-term promise of an EV business that is still years away from contributing meaningful profits – a gap that investors are punishing with every passing trading day.

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