Xiaomi's Q2 Revenue Slides 6% as Smartphone Sales Weaken Despite EV Gains

Smartphone Weakness Offsets Auto Momentum

Xiaomi posted second-quarter revenue of RMB 108.9 billion (USD 16.2 billion), a 6.1% decline from the same period last year, according to the company's earnings release. Adjusted net profit fell 42.6% to RMB 6.2 billion (USD 920 million), while reported profit dropped 20.3% to RMB 9.5 billion (USD 1.4 billion).

The results highlight a growing tension in Xiaomi's business model. While the company has gained traction in electric vehicles over the past year, its core smartphone operations continue to lose ground in an increasingly competitive Chinese market. The earnings signal that automotive growth, though promising, remains too small to counterbalance pressure in mobile devices.

Handset Sales Under Pressure

The smartphone division, which still accounts for the majority of Xiaomi's revenue, faced headwinds during the quarter. Intensifying competition from domestic rivals and a cautious consumer spending environment in China weighed on unit sales and pricing power. The company has struggled to maintain share in the premium segment, where Apple and Huawei have reasserted dominance, while mid-range offerings face aggressive competition from Oppo, Vivo, and Honor.

Xiaomi's smartphone average selling price remained under pressure as promotional activity increased across the industry. The company has historically relied on volume and ecosystem lock-in rather than hardware margins, but that strategy becomes more difficult when overall unit shipments contract.

EV Division Expands but Remains Small

Xiaomi's automotive business delivered growth, but from a low base. The company began mass production of its SU7 sedan in early 2024 and has gradually expanded manufacturing capacity. Vehicle deliveries increased during the second quarter, contributing a larger share of consolidated revenue than in previous periods.

However, the EV segment remains subscale relative to handsets. Xiaomi faces stiff competition from established players including BYD, Tesla, and a crowded field of Chinese startups such as NIO, Li Auto, and Xpeng. The automotive market in China has also entered a phase of price competition, compressing margins for new entrants.

Xiaomi's strategy involves leveraging its existing ecosystem of smart home devices and software to differentiate its vehicles. The company aims to integrate its cars with its MIUI operating system and IoT platform, creating a seamless user experience for existing customers. Whether this approach can generate sustainable competitive advantage remains an open question.

Margin Compression and Profitability Concerns

The sharp decline in adjusted net profit reflects both lower revenue and margin compression. Xiaomi's investment in EV production, research and development, and sales infrastructure has increased operating costs. At the same time, the smartphone business is generating less cash as competition forces higher marketing spend and promotional discounts.

The company's gross margin likely came under pressure from both segments. Smartphone gross margins have been squeezed by pricing competition, while automotive gross margins are typically negative or low single digits for new entrants still ramping production. Xiaomi has not disclosed segment-level profitability, but the overall profit decline suggests the automotive business is not yet accretive.

Regional and Competitive Context

Xiaomi's challenges are not unique. The Chinese smartphone market has been flat to declining for several quarters as consumers delay upgrades and economic growth slows. The market has also become more concentrated, with the top five vendors capturing a larger share of sales. Xiaomi's position in Southeast Asia and other emerging markets has provided some offset, but these regions are also seeing increased competition from Chinese rivals expanding abroad.

In electric vehicles, the Chinese market is experiencing a shakeout. Smaller players are struggling to achieve profitability, and several startups have faced liquidity crises. Xiaomi's brand strength and financial resources give it an advantage over some competitors, but the company is still early in its automotive journey and faces execution risk.

What Comes Next

Xiaomi's near-term outlook depends on its ability to stabilize smartphone revenue while scaling its automotive operations. The company is expected to launch additional vehicle models over the next 12 to 18 months, which could broaden its market appeal and increase production volumes. However, success in EVs will require sustained capital investment and a long path to profitability.

In smartphones, Xiaomi will need to defend its position in China while continuing to grow internationally. The company's ability to introduce compelling devices in the premium segment and maintain cost discipline in the mid-range will be critical. The third quarter will offer further clarity on whether the current trajectory represents a temporary dip or a more structural shift in the company's growth profile.