Xiaomi’s Earnings Test: Can It Protect Phone Margins While Funding EV Growth?

Xiaomi’s first-half earnings report arrives at a difficult intersection: its smartphone business is facing higher memory costs just as the company continues to invest in electric vehicles, new models, and the SkyNomad brand. The central question is whether management can preserve profitability while still funding the expansion that is supposed to drive Xiaomi’s next phase of growth.

What investors will be watching

The most important signals are likely to be smartphone gross margin, the effect of memory prices on product pricing and configuration, EV losses per quarter, and management’s guidance for the second half. Bloomberg has identified control of rising material expenses as a key condition for Xiaomi’s share-price rally to continue.

That makes the report more than a revenue event. It is a test of whether Xiaomi’s hardware and automotive strategy can absorb a period of unusually high input costs without forcing a wider retreat from premium products or delaying EV investment.

Smartphones: memory inflation is squeezing the profit pool

Xiaomi’s first-quarter results provide the baseline. Group revenue was RMB99.1 billion, down 10.9% year over year, while adjusted net profit fell 43.1% to RMB6.1 billion. Smartphone revenue was RMB44.3 billion, and the company’s reported results linked pressure on profitability partly to higher memory-chip costs.

Reports have claimed that DRAM and NAND costs rose sharply—possibly by roughly four times compared with early 2025 levels—and that this made the planned Ultra model economically difficult to produce. Those figures come from industry and media reporting rather than a confirmed Xiaomi announcement, so they should be treated cautiously.

The practical issue is straightforward: a premium phone typically combines high memory capacity with expensive cameras, displays, processors, and other components. If memory costs rise faster than the phone’s achievable selling price, the most heavily configured model can become the least attractive product financially.

The Xiaomi 18 Ultra cancellation remains unconfirmed

Several reports say Xiaomi has dropped the Xiaomi 18 Ultra and will instead position the Xiaomi 18 Pro Max as the range-topping model. Other leaks have continued to describe a four-phone lineup or a later Ultra launch, showing that the product roadmap remains unsettled.

There is no company confirmation in the supplied reporting that the 18 Ultra has been cancelled. The safest interpretation is therefore that this is leak and supply-chain reporting, not an announced change in strategy.

If the cancellation is accurate, it would be consistent with targeted cost control. Xiaomi could be avoiding a particularly memory-intensive flagship whose component bill would be difficult to reconcile with market pricing. That would not necessarily mean a broad withdrawal from high-end smartphones: retaining the Pro Max would allow Xiaomi to maintain a premium product while reducing the risk associated with an even more expensive Ultra tier.

What would indicate a broader handset retreat?

The earnings report could clarify whether the Ultra story is an isolated product decision or part of a wider reset. Investors should look for:

• Lower smartphone gross-margin guidance;
• Changes to premium-phone specifications or storage configurations;
• Weaker smartphone shipment or pricing expectations;
• Explicit commentary on passing memory inflation through to customers; and
• Evidence that Xiaomi is delaying, simplifying, or cancelling additional flagship products.

A stable premium roadmap and resilient handset margin would support the temporary-setback interpretation. A series of product reductions combined with weaker margin guidance would suggest that component inflation is affecting Xiaomi’s broader smartphone strategy.

EVs: growth is still arriving with substantial losses

Xiaomi’s automotive expansion remains the other half of the earnings story. The company delivered 80,856 vehicles in the first quarter of 2026, while its smart-EV and other new-initiatives segment recorded a RMB3.1 billion operating loss.

That loss is not evidence that the EV strategy has failed. New vehicle businesses typically carry substantial costs for manufacturing, sales networks, research, marketing, and product launches. But it does show why investors will want more than delivery growth: they need evidence that Xiaomi is moving toward better economics as volumes increase.

Using the reported quarterly loss and Q1 deliveries as a simple illustration gives approximately RMB38,000 of operating loss per vehicle. This is only a rough ratio, not a measure of the underlying contribution margin. The segment includes costs beyond the production of each individual car, and a single quarter can be distorted by model transitions, factory utilization, and launch spending.

The more useful questions are whether EV gross margin is improving, whether fixed costs are being spread across more vehicles, and whether new models can expand sales without proportionally increasing losses.

SkyNomad adds opportunity—and more execution risk

Xiaomi has introduced SkyNomad as a vehicle series aimed at large-family and lifestyle-oriented SUVs. The first models are described as range-extended SUVs, taking Xiaomi into another segment of China’s highly competitive auto market.

The launch could broaden Xiaomi’s addressable market beyond its existing SU7 and YU7 customer base. It also creates additional execution demands: the company must manage production, pricing, marketing, inventory, and customer acceptance while its EV business is still absorbing significant operating losses.

For that reason, SkyNomad’s importance to the earnings outlook is not limited to its launch reception. Investors will want to know whether it can improve the product mix and factory utilization—or whether it initially adds another layer of spending before delivering meaningful scale.

Is the Ultra decision temporary or the start of cost-cutting?

The evidence currently supports a cautious conclusion. The reported 18 Ultra cancellation may be a rational response to component economics, but it is not enough on its own to establish a company-wide reduction in flagship ambition.

Reports of a possible Xiaomi 19 Ultra return have also circulated, but the timing and existence of such a product are not confirmed. The near-term evidence will come from Xiaomi’s actual product announcements and its comments on memory procurement, pricing, margins, and premium demand—not from leak-based launch schedules.

The earnings outcome that would matter most

A constructive report would show that Xiaomi can offset higher component costs through procurement, pricing, product mix, or better operating efficiency. It would also point to improving EV economics and provide credible guidance for scaling deliveries and new-model production.

A weaker report would show another sharp decline in profitability, persistent EV losses without a clearer path to scale, or evidence that memory inflation is forcing broader compromises in Xiaomi’s smartphone lineup.

The immediate verdict, then, is unlikely to be whether one flagship model survives. It will be whether Xiaomi can protect the cash-generating smartphone business while building an automotive operation that has not yet reached consistent profitability.