Xiaomi Turns to Record Buyback as Chip Costs and EV Losses Smother Q1 Profits

Chinese consumer electronics and electric vehicle maker Xiaomi has taken the unusual step of launching the largest share repurchase programme in its history just as investors absorb the company’s worst quarterly profit slump in years. The timing is no coincidence: the stock touched a 52-week low in Hong Kong on the eve of the buyback’s first visible deployment, with the Frankfurt-listed depositary receipt closing at €3.08 — a slide of nearly 32% since January and roughly 46% lower than a year ago.

The buyback, worth up to HK$20 billion (about US$2.55 billion), officially begins on 2 June 2026 and runs for twelve months. It replaces a completed programme that saw Xiaomi repurchase shares worth approximately HK$14.6 billion. Investors got an early taste on 28 May when the company bought 10.5 million shares for HK$298 million in a single session—a signal that management believes the equity is undervalued. Whether that conviction is enough to stem the selling pressure remains an open question.

The root cause of the stock’s travails is a brutal set of first-quarter numbers. Revenue fell nearly 11% year-on-year to 99.1 billion renminbi. Adjusted net profit — stripping out one-off items — dropped 43% to 6.1 billion RMB, significantly missing analyst forecasts. On a reported basis, the bottom line was even worse: net profit tumbled 57% to 4.7 billion RMB, the steepest decline in several years.

The villain of the piece is a surge in memory-chip costs. Prices for DRAM and NAND flash have roughly doubled over the past year, driven by voracious demand from AI data centres. CEO Lei Jun warned the situation may persist for another two years, though president William Lu Weibing described the elevated costs as a “new normal” and expects some relief from the third quarter.

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Nowhere is the pain more visible than in Xiaomi’s core smartphone business. The company shipped 33.8 million handsets in the quarter, a 19% drop — the steepest contraction among the world’s top five vendors. Gross margin in the segment shrank to just 10.1%, squeezed by both higher component costs and weaker volume. Xiaomi still holds third place globally with an 11.3% market share, but maintaining that position is becoming increasingly expensive.

The electric vehicle division, by contrast, is growing fast but remains a cash furnace. Xiaomi delivered roughly 80,800 vehicles in the first quarter, a 6.6% sequential increase. Revenue from EVs reached 19.9 billion RMB. Yet the unit swung back to an operating loss of 3.1 billion RMB — or about US$5,600 per car — after briefly posting an annual profit in 2025. The company is targeting 550,000 deliveries for the full year 2026, a 34% jump from last year.

To reduce its dependence on the smartphone cycle, Xiaomi is doubling down on automotive differentiation. The company has developed its own aluminium alloys for so-called “hypercasting”, a process that casts large body sections in a single mould. Lei Jun claims only Tesla currently masters the same technique. The next catalyst on the horizon is the launch of an SUV and an update to its “XLA V2” AI driver-assistance system in June.

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Further out, Europe represents a major growth frontier. Xiaomi intends to enter the market in the second half of 2027, starting with Germany, followed by right-hand-drive markets such as the UK, Japan, Australia and India from early 2028. For now, however, the share price is betting that the chip-cost headwind and EV cash burn will overshadow those long-term ambitions — and the buyback is a bet that it is wrong.

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