--- title: "Xiaomi: The gross margin of its car business is 2.3 times that of its phone business, so why is it the one losing money?" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/43463989.md" description: "Xiaomi is running two engines. One sells phones and IoT, having operated for over a decade; the other builds cars and does AI, just turning three years old. This quarter, the efficiency ranking of the two engines swapped positions—but the one truly generating profit remains the older one. $XIAOMI-W(01810.HK) Q2 revenue was RMB 108.9bn (-6.1% YoY); adj. net profit was RMB 6.22bn (-42.6% YoY), slightly below market estimates of RMB 6.31bn. Gross margins have inverted for smart EV and AI innovation businesses..." datetime: "2026-08-18T14:27:53.000Z" locales: - [en](https://longbridge.com/en/topics/43463989.md) - [zh-CN](https://longbridge.com/zh-CN/topics/43463989.md) - [zh-HK](https://longbridge.com/zh-HK/topics/43463989.md) author: "[热点君](https://longbridge.com/en/profiles/1450684.md)" --- # Xiaomi: The gross margin of its car business is 2.3 times that of its phone business, so why is it the one losing money? Xiaomi is running two engines. One has been selling phones and IoT devices for over a decade; the other, focused on EVs and AI, just turned three this quarter. The efficiency ranking of these two engines flipped positions—but it's still the older engine that's actually generating profit. $XIAOMI-W(01810.HK) Q2 revenue was RMB 108.9bn (-6.1% YoY); adjusted net profit was RMB 6.22bn (-42.6% YoY), slightly below market expectations of RMB 6.31bn. #### **Gross margins have inverted** Innovative businesses like smart EVs and AI posted a segment gross margin of 19.2%, while smartphones sat at 8.5%. A year ago, those figures were 26.4% and an even lower tier—the auto division's margin is declining but still more than double that of smartphones. #### **The profit hierarchy hasn't shifted** The Auto & AI segment reported an operating loss of RMB 2.6bn this quarter, down from RMB 3.1bn last quarter, narrowing steadily. Its ~RMB 4.8bn in gross margin was entirely consumed by R&D and expenses. Meanwhile, the Phone × AIoT segment generated RMB 84bn in revenue with a 20.0% gross margin, effectively carrying the group's profitability. #### **Where did the RMB 9.46bn come from?** GAAP net profit hit RMB 9.46bn, significantly beating the RMB 5.76bn consensus. However, the income statement includes RMB 6.46bn in gains from fair value changes of financial instruments (vs. RMB 3.36bn YoY) and RMB 2.16bn in other income, both non-operating items. Stripping these out leaves the RMB 6.22bn adjusted net profit, which came in slightly below estimates—a classic 'GAAP beat, adj. miss' report. #### **Smartphones trading volume for ASP** Smartphone revenue totaled RMB 42.1bn on shipments of 31.2mn units (-26.5% YoY). ASP rose to RMB 1,351 (+25.9% YoY), setting a record high, with the share of models priced above RMB 3,000 in mainland China climbing to 32.1%. Rising memory costs capped gross margins at 8.5%, as price hikes failed to fully offset cost pressures. #### **Where is the cash going?** R&D spending reached RMB 9.2bn this quarter, up 18.9% YoY, bringing H1 cumulative spend to RMB 18.2bn. Capex stood at RMB 3.6bn, with innovative businesses accounting for RMB 2.4bn. ## What's the bet? Betting on this earnings report means betting on when the auto business can turn its 19.2% gross margin into positive operating profit. Demand isn't the issue: deliveries hit **104,199** units in Q2 (+28.2% YoY), outperforming the mainland China passenger vehicle retail market which contracted **22%**. Losses are also trending in the right direction. The challenge is timing. With an annual target of 550,000 units and 216,322 delivered through July, the remaining five months require nearly 67,000 units per month—more than double the current pace. The Xiaomi Pengcheng N70/N90 Max launching in September is the only variable left to close the gap. A favorable external condition is still needed on the cost side. Lu Weibing stated during the earnings call that the industry's toughest period has passed, expecting memory prices to enter a slow-growth phase in H2, though levels remain elevated. ## Four business lines laid out **Segment** **Q2 Revenue** **Gross Margin** **Status** **Smartphones** RMB 42.1bn 8.5% Shipments 31.2mn units, ASP RMB 1,351 ATH **IoT & Lifestyle Products** RMB 31.3bn 20.1% 1.16bn AIoT connected devices, ATH **Internet Services** RMB 9.0bn 76.8% Most profitable segment globally, MAU 766.5mn **Smart EVs & AI Innovation** RMB 24.9bn 19.2% Operating loss RMB 2.6bn, narrowing QoQ The largest segment by volume is the least profitable, while the most profitable segment is the smallest—internet services boast a gross margin nine times that of smartphones, yet generate only one-fifth of its revenue. ## \[Prize Discussion\] **What do you think of Xiaomi's earnings? Share your views in the comments!** Valid content in the discussion area (reaching **30+ characters**) will earn **200 Task Coins**! We encourage original posts; reposts, spam, or violations will not be selected. _Reminder:_ _⚠️ The event ends on August 21st; rewards will be distributed within 3 working days after the deadline._ _🎁 Information compiled from public data, constituting no investment advice. Markets carry risks; make independent decisions._ ### Related Stocks - [01810.HK](https://longbridge.com/en/quote/01810.HK.md) - [81810.HK](https://longbridge.com/en/quote/81810.HK.md) - [HXXD.SG](https://longbridge.com/en/quote/HXXD.SG.md) - [XIACY.US](https://longbridge.com/en/quote/XIACY.US.md) ## Comments (272) - **夏天的金毛 · 2026-08-20T09:27:27.000Z**: In dreams, unaware of the late hour in the mortal world; Looking back, autumn covers the mountains and rivers. - **雪流星 · 2026-08-20T09:15:17.000Z**: Red Ocean Market - **一二三四五六 · 2026-08-20T09:14:33.000Z**: The metaphor of 'two engines' is apt. The most dramatic reversal this quarter lies in gross margin: the Auto + AI business surpassed mobile's 8.5% with a 19.2% GM, achieved despite its own QoQ GM decline. However, the 42.6% YoY plunge in adjusted net profit of ¥6.22bn indicates that the high-margin - **破茧天魔 · 2026-08-20T09:08:23.000Z**: Xiaomi's Q2 revenue still broke the 100 billion mark, but profit saw a sharp YoY decline, with the smartphone segment under clear pressure; while automotive and AI growth were bright spots, they remain in the investment phase. Short-term earnings face headwinds, but whether it can deliver on its 'hu - **依你 · 2026-08-20T08:51:44.000Z**: It's okay - **拖鞋进交易所 · 2026-08-20T08:49:04.000Z**: You can take a look at Xiaomi for now. - **Leo.L_MR1idi · 2026-08-20T08:33:46.000Z**: Bearish on Xiaomi - **东756 · 2026-08-20T08:29:12.000Z**: Remains bullish on Xiaomi and Lei Jun - **特朗普我热烈的马 · 2026-08-20T08:27:17.000Z**: After the previous peak, it was bearish for three years. This cycle has only been going on for a year; if we follow the 'marking the boat to find the sword' logic, it will likely remain bearish for at least another year. That would be when these new growth drivers finally materialize, much like the - **sha2026 · 2026-08-20T08:26:28.000Z**: Let's see if Xiaomi can drive consumption. - **Tt7wYUJ · 2026-08-20T08:19:14.000Z**: If you missed the AI wave, you're already an old timer. - **数学系のlittle · 2026-08-20T08:19:02.000Z**: Oh😲? - **菟菟121 · 2026-08-20T08:15:08.000Z**: Xiaomi's Q2 revenue reached RMB 108.9bn; while maintaining its scale above the trillion-RMB mark, it saw a slight YoY decline. Adjusted net profit fell 42.6% YoY, with clear pressure on the bottom line. On one hand, rising costs for core components like memory squeezed smartphone gross margins, lead - **Elvis1995 · 2026-08-20T08:06:14.000Z**: Go for it, bullish on Xiaomi - **赚钱买Tesla · 2026-08-20T08:01:27.000Z**: Xiaomi is under no pressure, reminding me that the bottom hasn't been reached yet. - **zhukeren9528 · 2026-08-20T07:50:11.000Z**: Xiaomi's automotive business is currently mired in a chaotic struggle; it's going to be tough. - **用户yang · 2026-08-20T07:44:48.000Z**: It's all a scam to get money. - **一人一支可樂 · 2026-08-20T07:16:49.000Z**: Fell to a low point, back to the bottom. - **Eyre · 2026-08-20T06:46:57.000Z**: Xiaomi's automotive segment gross margin is significantly higher than its mobile phones, yet it remains unprofitable, primarily due to high R&D and production line depreciation costs eroding profits. High gross margin only reflects the per-vehicle sales spread, insufficient to cover massive upfr - **小股东 · 2026-08-20T06:36:28.000Z**: With such a low gross margin, it's basically hard-earned money. Just buy NVIDIA and TSMC instead; their gross margins both exceed 50%. Invest in companies that make money 'easily'.