Xiaomi in crisis? E-car success collides with plummeting smartphone sales

The latest financial results from Beijing reveal a stark contrast in Xiaomi’s business figures. While the brand-new electric vehicle division is, completely unexpectedly, already reaping profits, the traditional smartphone business is suffering a painful slump. Those blinded by Xiaomi's impressive e-car sales figures are overlooking the massive cost problem lurking beneath the surface.

A total of 411,082 electric vehicles sold in 2025 generated 900 million yuan (approx. $131 million) in operating profit. Such a rapid return to profitability is considered virtually impossible among automakers. Xiaomi also achieved a gross margin of 24.3% with its successful SU7 and YU7 models. Industry leader BYD is currently struggling at 17.6%, while Tesla is stuck at around 15.4%. 

However, Xiaomi's smartphone production is now creating a huge hole in its finances. Adjusted net profit plummeted by almost 24% in the fourth quarter to 6.3 billion yuan (around $914 million). The reason for the slump is the increasing price of hardware components, as memory chips such as DRAM and NAND cost almost four times as much as last year. Suppliers are now charging up to $130 for a standard module with 12 GB of RAM and 256 GB of storage, instead of the usual $30. These additional costs are ruthlessly eating up profits from car sales.

The situation is expected to worsen in 2026. Significant government subsidies for car purchases in China will be phased out, further intensifying price competition in the domestic market. Added to this is the costly pressure to keep pace with AI, in which Xiaomi CEO Lei Jun plans to invest at least 60 billion yuan over the next three years. Investors are becoming increasingly nervous about this combination of shrinking margins and high capital requirements. Xiaomi's stock has already fallen by 21% since the beginning of the year. Whether car sales can offset the massive cost pressures in the long term remains to be seen.