Following two years of impressive growth, Xiaomi enters 2026 with a strategic pivot amid across-the board headwinds. In the smartphone segment, Xiaomi will balance volume with pricing integrity to offset rising memory costs, focusing on premiumisation in China and key regional deployment. While the IoT business faces a post-subsidy lull in China, robust overseas momentum is expected to buffer domestic softness and sustain resilient margins. Crucially, the Smart EV segment is transitioning from a supply-constrained to a demand-driven phase. Future volume upsides will increasingly hinge on product execution, particularly the late-March launch of new SU7 and potential SU7L, and the market reception of the EREV model in 3Q. To reflect lower smartphone shipments/margins, and higher OPEX in smart EV and new initiatives (mainly AI), we trim 2025-26 core earnings forecasts to RMB39.8bn/RMB37.9bn and lower TP to HK$47.88. We believe Xiaomi’s heavy investments in AI, robotics, and chips is poised to deliver tangible returns, underpinning valuation. Maintain BUY.
Key Factors for Rating
Smart EV and other new initiatives. Jan EV deliveries of 39k units (up 70%+ YoY but down around 20% MoM) outperformed peers, supported by YU7 backlog and new financing promotions (3-yr zero / 7-yr low rates). For 4Q25, we expect gross margin likely to soften 1-2ppts QoQ with lower high-margin SU7 ultra mix, but ongoing rapid scaling revenue will drive operating profit to improve sequentially. In 2026, we anticipate potential upside from the April SU7 facelift + potential SU7L launch, plus key YU9 EREV SUV in 2H26, regardless of moderate vehicle margin compression. To reflect softer margin outlook and higher OPEX outlay for elevated AI, advanced chips, robotics, as well as prepared works for 2027 overseas push, we nudge down 2026/27 operating profit forecasts to RMB5.5bn/10.1bn, respectively.
Smartphone. Xiaomi’s 4Q25 smartphone shipments fell 11% YoY to 37.8m units, due to subdued entry-level demand and contraction in key markets like China. With shipment shortfalls and rising memory costs, we project 4Q25 gross margin to compress by 2ppts QoQ. Looking into 2026, amid the persistent sector-wide headwinds, we expect Xiaomi to pivot towards a more agile execution strategy — accelerating product launch pace and adopting regionspecific strategies to better balance volume and ASP. While aiming to retain its global No.3 ranking, Xiaomi is likely to de-emphasise overall global market share, focusing on pricing power and strategic gains in selected overseas markets like Africa, alongside resolute premiumisation in China. Financially, we foresee 2026 smartphone revenue to be pressured by shipment contraction, partially mitigated by visible ASP expansion.
IoT. We expect 4Q25 IoT revenue and gross margin likely to be tempered by the premature withdrawal of domestic trade-in subsidies. For 2026, the ongoing subsidy cuts and front-loaded demand will continue to weigh on domestic revenue. However, robust overseas expansion should mitigate China’s softness. Unlike smartphones, we anticipate Xiaomi’s IoT segment to maintain resilient gross margins in 2026, supporting overall traditional business profitability.
Smart EV and other AI New Initiatives
January deliveries: Resilient amid seasonal weakness
In January, Xiaomi’s vehicle deliveries exceeded 39k units, surging over 70% YoY and down around 20% MoM. The figure outperformed most peers, largely aided by ample order backlog for YU7 SUV. The financing promotions on the YU7 — featuring 3-year zero-interest and 7-year low-interest plans launched in January — helped new order intake through the industrywide softness till new launches. We anticipate the order backlog cushion and promotional support should provide some stability for 1Q26 deliveries, though financing promotions may adversely impact the ASP by over RMB10k.
4Q margin likely to soften on lower high-margin SU7 ultra mix
In 4Q25, Xiaomi delivered 145k units vehicles, which will drive the segmental revenue to increase over 30% QoQ under our estimates. However, the notable decline in deliveries of the luxury-spec SU7 Ultra (at 200–300 units in 4Q versus c.5,000 units in 3Q) which enjoy outsized margin contribution in lineups, may lead to the pullback of blended margin. Therefore, in spite of better scale effect, we expect 4Q25 vehicle margin to ease 1.5-2ppts from the 3Q level of 25.5%.
That said, the ongoing rapid scaling of the revenue base — coupled with disciplined OPEX management — should continue to support a sequential uptick in automotive operating profit to above RMB900m from RMB684m in 3Q25, further demonstrating the strengthening operational leverage from volume expansion.
2026 pipelines: Strategic expansion with EREV entry and volumeoriented variants
For BEV, although the company didn’t make any official statements regarding the SU7L, our channel check points to a potential concurrent debut alongside the refreshed new SU7 in April 2026. Likely a long-wheelbase variant of the SU7 sedan with enhanced rear-space comfort and potentially more accessible pricing/positioning, the SU7L is designed to drive higher volumes by appealing to premium family buyers and business users seeking greater practicality. The addition of SU7L will strengthen Xiaomi’s sedan segment, creating a more layered portfolio that captures incremental demand, thereby enhancing overall lineup competitiveness and supporting sustained delivery growth.
For EREV, the inaugural EREV YU9 SUV, is planned for launch in 2H26, with delivery likely to start in 3Q26 or early 4Q26. Positioned as a full-size luxury family SUV with six- or seven-seat configurations, the YU9 targets multi-generational middle-aged households and long-distance travelers concerned with range anxiety. It nicely complements Xiaomi’s current pure BEV lineup by addressing a key consumer pain point in China’s family-oriented market — competing directly against established players like Li Auto L9 and AITO Wenjie M9 — while broadening appeal beyond pure BEV buyers and Xiaomi traditional brand loyalists (mainly core young customer base).
MiMo-V2-Flash: Compelling full-stack AI differentiator
Xiaomi's MoE-based MiMo-V2-Flash large language model, released in December 2025, has demonstrated standout performance in code generation, mathematical reasoning, and multilingual programming — approaching top-tier closed-source models at significantly lower cost. Per OpenRouter data, MiMo-V2-Flash maintains strong usage momentum, ranking No. 4 on the monthly leaderboard and leading among domestic large models.
We view the "Xiaomi + MiMo " combination as the closest domestic analog to "Tesla + Grok," replicating the full-stack self-research barriers across hardware, models, and data loops. Deep integration with HyperOS and Xiaomi's full ecosystem (spanning smartphone, automotives, IoT devices, and smart home appliances) provides native advantages in scenario coverage, localisation, and cost-efficiency over pure-play AI developers (e.g., OpenAI, DeepSeek, MiniMax). This also positions MiMo to accelerate Xiaomi's intelligent driving catch-up, closing gaps with industry leaders through superior ecosystem synergy and commercialisation speed.
Earnings forecast
We maintain our 2026 full-year vehicle sales forecast at 650k units intact, representing c.100k units above the company’s official sales target of 550k vehicles. This constructive view is supported by the anticipated positive momentum from the facelifted 2026 SU7 model to be launched in April, combined with the potential volume contribution surprise from the SU7L variant, which could meaningfully expand addressable demand in the premium sedan segment. Additional upside may stem from the broader product expansion, including EREV offerings later in the year, helping Xiaomi sustain strong growth trajectory amid a competitive market. In all, we leave our 2026-27 revenue forecasts intact at RMB167.5bn/RMB224.3bn, respectively.
We anticipate 2-3ppts YoY decline in Xiaomi’s vehicle margin for 2026, stemming from its shift toward demand-led conditions following capacity bottlenecks released, amid persistent competitive pricing, higher incentives, and moderated macro demand. That said, ongoing volume scaling, along with continued efficiencies in supply chain and manufacturing, should provide meaningful offsets and help preserve a relatively healthy margin profile compared to broader industry trends.
To reflect elevated investments in strategic areas — including advanced chips, large language models, robotics initiatives, and preparatory work for overseas market entry (such as product adaptation, channel development, and ecosystem readiness ahead of targeted 2027 internationalisation), we raise our 2026/27 OPEX projections to RMB31bn/39.5bn, respectively. Accordingly, we nudge down segmental operating profits forecasts to RMB5.5 bn/10.1 bn, respectively.
Valuation
Applying a 3x 2026E P/S multiple, we assign an equity value contribution of RMB501bn for smart EV segment standalone, equivalent to HK$20.6 value per share. Primary near-term catalysts to monitor include detailed specifications for the refreshed SU7 expected in late March 2026, any updates on the SU7L variant, and progress indicators for the EREVs slated for 2H26.
Separately, the financial recognition of MiMo and other AI initiatives are currently being reflected within the smart EV reporting segment, for powering advanced in-car intelligence, HyperOS-enabled full-scenario connectivity, and differentiated user experiences. Yet, the broader intrinsic value of MiMo and Xiaomi’s AI ecosystem remains under-recognised by the market. This stems primarily from: (i) The auto business continuing to be valued largely through a traditional hardware lens; (ii) MiMo remains embedded within the wider smart EV segment without distinct standalone or synergistic valuation attribution for its AI contributions; (iii) Near-term earnings visibility from AI ecosystem synergies still developing and not yet clearly reflected in models.
Compared to LLM pure-plays like MiniMax, which achieved a market capitalisation surpassing RMB100bn shortly after its early 2026 Hong Kong IPO, Xiaomi’s MiMo enjoys clear structural edges, which contain deep native integration across its expansive hardware footprint, closed-loop real-world data from full-domain usage, and versatile multi-scenario deployment that algorithm-centric players cannot match. These advantages lay a more robust foundation for scalable commercialisation and lasting differentiation. In conclusion, we deem our higher-than-peers P/S multiples (3x P/S versus 1.5-2x P/S) applied to smart EV and other new initiatives segment is well justified in light of its accelerating AI advancements, particularly the achievements of proprietary MiMo large language model.