Xiaomi's latest financial report shows its Q3 adjusted net profit reached a record high of RMB 11.3 billion, up 81% year-on-year, exceeding Wall Street expectations. Notably, its smart EV and AI innovation business segment achieved operating income of RMB 700 million, marking its first profitable quarter. However, the strong earnings failed to boost market sentiment, with Xiaomi's shares dropping nearly 5% the following trading day.
While maintaining "Buy" or "Overweight" ratings, Wall Street's top three investment banks—Citi, Goldman Sachs, and Morgan Stanley—showed diverging price targets. Citi slashed its target from HK$65 to HK$50, Goldman Sachs trimmed from HK$56.5 to HK$53.5, while Morgan Stanley kept its HK$62 target unchanged.
Analysts widely noted Xiaomi faces dual profitability challenges. Short-term, rising memory prices will erode smartphone margins; medium-term, the 2026 phase-out of EV purchase tax subsidies will pressure automotive margins. Against this backdrop, actual EV delivery performance and new model development have become critical market sentiment drivers.
**Smartphone Business: Consensus and Divergence Under Cost Pressure** The three banks share a clear consensus: memory chip price hikes driven by AI demand present a long-term structural challenge that will continue suppressing industry-wide profitability. Xiaomi's strategy of "prioritizing market share over short-term margins" has gained analyst approval.
To counter this, Xiaomi has taken measures: securing 2026 memory supply through stable partnerships and focusing on raising average selling prices (ASP) while expanding market share. The company reiterated its 2030 target of shipping 30 million premium devices. However, analysts generally believe these measures can only partially offset cost pressures.
Despite agreeing on trends, banks differ on impact severity: - Citi took the most cautious stance, cutting 2025–2027 smartphone shipment forecasts to 170M/160M/166M units and margin estimates to 11.3%/8.9%/9.0%. - Goldman Sachs similarly warned of margin pressure, projecting 2026 smartphone margins at 8.8% (down ~1 percentage point) with shipments at 169M units, slightly below 2025's 171M. - Morgan Stanley noted Xiaomi will rely more on product mix optimization and cost controls, as retail price increases can only partially pass through memory cost hikes.
**EV Business Achieves Profit Breakthrough, Tax Policy Views Diverge** Wall Street unanimously recognizes Xiaomi's EV business as its new growth engine. All three banks highlighted the segment's milestone RMB 700 million operating profit in Q3, cementing its role as the company's second growth pillar.
The EV business showed comprehensive breakthroughs: Q3 revenue surged 199.2% YoY (up 36% QoQ) to RMB 29 billion, exceeding Morgan Stanley's estimates. Deliveries climbed to 108,800 units (48,600 in October alone), with SU7 and YU7 models contributing 15,000 and 33,700 units respectively.
Goldman Sachs raised its 2025 delivery forecast to 403,000 units—the most bullish among institutions. A positive signal is the shortened wait time for SU7 Pro/Max models to 6–9 weeks, suggesting order fulfillment by end-2025.
However, banks differ on 2026 outlooks, particularly regarding EV tax subsidy impacts: - Citi lowered long-term margin forecasts to 25.2%/22.2%/25.3% to reflect policy headwinds. - Goldman believes delivery cycle compression can effectively offset ~RMB 3 billion subsidy pressure, projecting stronger earnings resilience.
All three banks maintain positive stances: Citi sees new model launches and subsidy updates as catalysts; Goldman recommends buying dips given favorable risk-reward; Morgan Stanley emphasizes new model developments as key stock drivers over 3–6 months.
Comments