Xiaomi Q2 Earnings Preview: Smartphone Business Gross Margin in Focus, Can EV Business Bear the Growth Banner?

　　Synthesizing views from multiple institutions, a core contradiction for Xiaomi Group lies between the simultaneous decline in volume and price of its smartphone business and the climbing gross margin of its EV business. Three major pressures—drag from the Indian market, rising storage costs, and subsidy reductions—are forcing Xiaomi to accelerate its strategic transformation towards "premiumization + ecosystem development."

　　Huaxing Securities' latest research report points out that the global smartphone market's recovery cycle has ended. Global shipments in Q2 were flat year-on-year (YoY), with Xiaomi shipping 42.4 million units, consistent with the market performance. However, industry price wars have spread from high-end models to the mid-to-low-end market, putting pressure on both the revenue and gross margin of Xiaomi's smartphone business. Huaxing predicts that Xiaomi's Q2 smartphone average selling price (ASP) was only 1,080 yuan, with related revenue declining 1% YoY, and gross margin decreasing nearly 1 percentage point quarter-on-quarter (QoQ) to 11.5%. Due to intensifying competition and rising memory costs, the gross margin may remain below 12% in the second half of the year.

　　Nomura Orient International Securities believes that the Bloomberg consensus expects Xiaomi's 2025 smartphone shipments to be around 170 million units, but affected by weak overseas markets, actual shipments may fall within the range of 160-170 million units. Rising component costs coupled with changes in the product mix make it difficult to reverse the downward trend in smartphone gross margin.

　　While the smartphone business is under pressure, Xiaomi's EV business has become the biggest highlight. Huaxing Securities notes that the SU7 Ultra model significantly improved the product structure, driving the Q2 EV ASP close to 240,000 yuan, with a gross margin reaching 23.4%. Although deliveries slowed temporarily in June due to preparations for the YU7 launch, they rebounded to over 30,000 units in July. With the optimization of the product structure, Q3 gross margin is expected to expand further. Nomura Orient International Securities emphasizes that strong demand for the YU7 and the continued strength of the SU7 Ultra limit fundamental risks for the EV business, which is expected to become profitable in the second half of the year.

　　The IoT business also performed notably well. Huaxing Securities expects Q2 revenue to grow 35% YoY, mainly driven by "white goods" categories like air conditioners. However, caution is warranted regarding additional cost pressures arising from intensified competition in the air conditioner market since Q2. Considering the impact of the smartphone business decline, Huaxing has lowered its total revenue forecast for Xiaomi for 2025-2027 by 1%, and its adjusted net profit forecast for 2025 and 2026 by 3% and 1%, respectively.