Two Model Series Xiaomi: Red Numbers in the Car Business, But Still A Challenge to Porsche

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After two profitable quarters, Xiaomi's vehicle division slips back into the red. Nevertheless, the Group continues to invest a lot of money—including for expansion into Europe. However, only a few model series remain.

After two profitable quarters in a row, Xiaomi's automotive business is back in the red. The smartphone group from Beijing reported an operating loss of 3.1 billion yuan (approx. $430 million) in its "Smart EV and AI innovation" division for the first quarter of this year.

Spread across the more than 80,000 vehicles delivered during those three months, this amounts to a loss of approximately $5,500 per vehicle sold, according to calculations by the Chinese industry portal CarNewsChina. In the same quarter of the previous year, the figure had been around $900 per vehicle.

Xiaomi's automotive business recorded its first-ever profitable quarter in the third quarter of 2025. In the fourth quarter, it followed this with an operating profit of 1.1 billion yuan (approximately $150 million). The current setback comes at an inopportune time for Lei Jun, the company's founder and chief executive officer.

The gross margin of the division fell to 20%, down from just over 23% a year earlier. This is still very strong for the Chinese automotive industry at present, but it nonetheless represents a decline that management had to explain to investors and the press.

Xiaomi: Three Reasons for the Setback

Xiaomi cited three external reasons: first, the decline in purchase incentives for New Energy Vehicles (NEVs) in China, which led to a noticeable increase in end-customer prices. Second, rising costs for core components. And third, the model changeover for the SU7 sedan, which coincided with the Chinese New Year holiday period.

“The automotive business has overcome severe challenges and passed the most difficult phase,” said Lu Weibing, partner and president of Xiaomi, during an analyst conference call. In April, Xiaomi already sold 36,700 cars, an increase of more than 70% compared to March, he added.

Despite the losses, Xiaomi is accelerating its investment pace. The company’s research and development (R&D) spending rose by 33% year-on-year in the first quarter to 9 billion yuan (about $1.2 billion). A significant share of this was directed toward automobiles and artificial intelligence (AI).

The company’s R&D team now comprises around 26,000 employees. Since entering the market in 2024, Xiaomi says it has invested approximately 30 billion yuan (about $4.1 billion) in the development of its automotive business.

Looking at Germany And the Nürburgring

Part of this funding has been flowing to Germany for just over a year. The European development center, opened in March 2025 in Munich, employs engineers and designers. According to Xiaomi, the company has recruited these specialists in part from BMW, Porsche, Lamborghini, and Mercedes-Benz.

“Europe has the world’s densest pool of talent for high-performance and luxury vehicles,” said Hu Zhengnan during the “Auto China” trade fair in Beijing. The official market entry into Europe—starting with Germany as the first stop—is planned for the second half of 2027.

Xiaomi is investing heavily in marketing, including expensive test drives at the Nürburgring. The SUV YU7 GT, available since May 21 for 389,900 yuan (about $53,000), set a new lap record for its vehicle class on the Nordschleife: 7 minutes and 22.755 seconds.

The car is aimed at buyers who would previously have chosen Audi, BMW, or Mercedes-Benz, said Lei Jun at the launch of the new model. The company’s ambitions are therefore at least as large as its advertising budget.

Risk from A Small Product Portfolio

“We hope to sell as many cars as possible with as few models as possible. Compared to other manufacturers, we will be more conservative in introducing new models and plan to launch roughly one new model per year in the coming years,” said Lu Weibing.

This principle of a limited product portfolio comes from the smartphone business, where it has consistently served Xiaomi well. It is also currently working in the automotive business. The SUV YU7 alone has sold more than 232,000 units since its market launch in June 2025.

However, some analysts see a certain risk in this approach. With only two active model lines—the SU7 and the YU7—the entire profitability depends heavily on a single car if sales of the second model slow down, wrote the business magazine Huxiu.

Competitors such as Leapmotor, Li Auto, or Nio offer five to seven model lines. In these companies, high-margin and low-margin models can offset each other. “What is exposed here is a structural bet that ties the hundred-billion-yuan future of an entire industry to the lifecycle of a single product,” the magazine Huxiu wrote.

Expansion Across All Levels

At the same time, Xiaomi is massively expanding its sales network. By the end of March, the company operated 490 stores in more than 140 cities across the People’s Republic of China. A year earlier, there were less than half as many.

In addition, Xiaomi is making major investments in artificial intelligence. In March, the company introduced its cognitive large model XLA. In May, it followed up with the OneVL model for autonomous driving. Xiaomi states that its minimum latency is 0.24 seconds, a fraction of that of conventional VLA models.

“36Kr analyzes that Xiaomi is trying to do several difficult things at once: expanding scale, moving into the premium segment, and preparing for international competition.” As a result, the pressure on R&D, cost control, brand positioning, and the company’s supply chain is expected to remain high for Xiaomi in the coming quarters as well.