Jefferies turns bearish on Xiaomi amid smartphone margin pressure
Investing.com -- Investment bank Jefferies has downgraded Xiaomi to “Underperform” following a weaker-than-expected first quarter for 2026, citing mounting pressure from slowing electric vehicle sales, shrinking smartphone margins, and rising component costs.
The brokerage cut its target price on Xiaomi shares to HK$25.49 from HK$26.98, implying a 14% downside from the stock’s previous close of HK$29.76. Analysts said the company’s first-quarter earnings before interest and tax (EBIT) plunged 70% year-on-year, significantly below both Jefferies’ own estimates and broader market consensus.
Xiaomi reported first-quarter revenue of RMB99.1 billion, down 11% from a year earlier, while adjusted net profit fell 43% to RMB6.1 billion. The company’s EBIT margin narrowed sharply to 3.0% from 9.0% a year ago.
Analysts attributed the earnings deterioration to weaker smartphone and AIoT sales, aggressive spending on research and development, and slower momentum in Xiaomi’s electric vehicle business. Research and development expenses surged 33% during the quarter.
Jefferies warned that Xiaomi’s smartphone division remains particularly vulnerable to soaring memory chip prices, especially because roughly 60% of its devices are sold below the US$200 price point. The bank said price increases on premium models may not be sufficient to offset rising component costs.
The note also highlighted signs of softening demand in Xiaomi’s EV segment. Vehicle shipments dropped to 81,000 units in the first quarter from 145,000 in the previous quarter, partly due to model transitions and slowing sales of the YU7 series. Despite management reaffirming a 2026 shipment target of 550,000 vehicles, Jefferies lowered its own forecast to 495,000 units.
Xiaomi’s AIoT division posted a 24% revenue decline, reflecting weak consumer demand in China and increased competition. However, overseas expansion provided some support, with international sales accounting for about 40% of AIoT revenue during the quarter.
Jefferies expects continued earnings pressure as Xiaomi ramps up investments in artificial intelligence and EV development. The company plans to spend approximately RMB40 billion on R&D in 2026.
The brokerage now values Xiaomi’s EV business at 1.5 times projected 2026 sales, down from 2.2 times previously, reflecting broader concerns over weakening EV demand and intensifying competition in China’s electric vehicle market.