Wall Street comments on Xiaomi's financial report: Q3 performance overall exceeded expectations, rising memory prices will suppress smartphone gross margins, and key variables lie in vehicle deliveries and progress of new models

Xiaomi's latest financial report shows that the company's adjusted net profit for Q3 reached RMB 11.3 billion, a record high, with a year-on-year increase of 81%, and overall performance exceeded Wall Street expectations. Notably, the Xiaomi smart electric vehicle and AI innovation business segment achieved operating income of RMB 700 million, marking the first time this business recorded a profit. However, the impressive financial data did not boost market sentiment, as Xiaomi's stock price fell nearly 5% the day after the report was released.

Regarding Xiaomi's financial report, the three major Wall Street investment banks, Citigroup, Goldman Sachs, and Morgan Stanley, maintained "buy" or "overweight" ratings, but target prices showed divergence. Citigroup significantly lowered its target price from HKD 65 to HKD 50, Goldman Sachs reduced it from HKD 56.5 to HKD 53.5, while Morgan Stanley kept it unchanged at HKD 62.

Analysts generally pointed out that Xiaomi is facing dual challenges in profitability. In the short term, the rise in memory prices will erode the gross margin of smartphones; in the medium to long term, the withdrawal of electric vehicle purchase tax subsidies in 2026 will pose challenges to automotive gross margins. Against this backdrop, the actual delivery performance of vehicles and the progress of new models have become the key factors determining market sentiment and stock price trends.

Smartphone Business: Consensus and Divergence Under Cost Pressure

The three investment banks have a clear consensus on the current state of Xiaomi's smartphone business: the price increase of storage chips driven by AI demand is a long-term structural challenge that will continue to suppress overall industry profits. In this context, Xiaomi's management strategy of "prioritizing market share and sacrificing short-term gross margin" has received widespread recognition from analysts.

To address this situation, Xiaomi has taken measures: on one hand, it has secured memory supply for 2026 and maintained stable cooperation with major domestic and foreign suppliers; on the other hand, it has clearly identified raising average selling price (ASP) and expanding market share as strategic priorities, reaffirming its goal of shipping 30 million high-end models by 2030. Through product premiumization and price adjustments, the company hopes to partially offset the pressure from rising costs, but it is generally believed that it will be difficult to fully offset.

Although the trend judgment is consistent, there is divergence in the degree of specific impact among the investment banks' forecasts:

• Citigroup is the most cautious, lowering its smartphone shipment forecasts for 2025–2027 to 170 million, 160 million, and 166 million units, with gross margin forecasts also lowered to 11.3%, 8.9%, and 9.0%.
• Goldman Sachs also warned of gross margin pressure, predicting a smartphone gross margin of 8.8% in 2026, about 1 percentage point lower than previously, with shipments expected to be 169 million units, slightly lower than 171 million units in 2025.
• Morgan Stanley pointed out that since the increase in terminal selling prices can only partially pass on the rising memory costs, Xiaomi will rely more on product mix optimization and other cost control measures to mitigate the impact

Automotive Business Achieves Profit Breakthrough, Tax Subsidy Policy Becomes Point of Divergence

There is a high consensus among Wall Street investment banks on the judgment that the rise of the electric vehicle business has become a new growth engine for Xiaomi. Citigroup, Goldman Sachs, and Morgan Stanley all emphasized in their research reports that the business achieving an operating profit of 700 million yuan in the third quarter is a milestone, marking its official emergence as the company's second growth engine.

Looking specifically at performance, Xiaomi's electric vehicle business has shown a comprehensive breakthrough. Third-quarter revenue reached 29 billion yuan, a year-on-year increase of 199.2% and a quarter-on-quarter increase of 36%, exceeding Morgan Stanley's expectations. Delivery volumes continue to rise, with 108,800 units delivered in the quarter, reaching 48,600 units in October alone, with the SU7 and YU7 models contributing 15,000 and 33,700 units, respectively.

Based on the strong growth momentum, Goldman Sachs has raised its 2025 delivery forecast to 403,000 units, making it the most optimistic among institutions. A noteworthy positive signal is that the waiting time for the SU7 Pro/Max models has been shortened to 6–9 weeks, and users who have placed orders are expected to complete their vehicle pickups by the end of 2025.

However, there are differing views among institutions regarding specific expectations, with the assessment of the impact of the vehicle purchase tax subsidy policy for 2026 becoming the main point of divergence: Citigroup has lowered its long-term gross margin forecasts to 25.2%/22.2%/25.3% to reflect policy impacts; Goldman Sachs believes that the shortened delivery cycle can effectively offset about 3 billion yuan of subsidy pressure, asserting that the company's profitability is more resilient.

Despite the differences in forecasts, the three major investment banks maintain a positive stance. Citigroup points out that the release of new electric vehicles and updates to consumer subsidy policies will serve as positive catalysts; Goldman Sachs believes that the 12-month risk-reward ratio remains favorable and advises investors to buy on dips; Morgan Stanley emphasizes that potential news about new models in the next 3-6 months will be a key driver of stock prices