Wall Street reviews Xiaomi’s financial report: Q3 performance overall exceeded expectations, memory price increases will suppress smartphone gross margin, key variables are automobile deliveries and new model progress.

Xiaomi's latest financial report shows that the company’s adjusted net profit in Q3 hit RMB 11.3 billion, a record high, representing a year-on-year increase of 81% and outperforming Wall Street expectations. Notably, Xiaomi’s innovative business segment including smart electric vehicles and AI achieved an operating profit of RMB 700 million, marking the segment’s first-ever profit. However, the impressive financial results failed to boost market sentiment, and Xiaomi’s stock price dropped nearly 5% the day after the report was released. Regarding this financial report, all three major Wall Street investment banks—Citigroup, Goldman Sachs, and Morgan Stanley—maintained “Buy” or “Overweight” ratings, but their target prices diverged: Citigroup sharply lowered its target price from HK$65 to HK$50, Goldman Sachs from HK$56.5 to HK$53.5, while Morgan Stanley kept its target at HK$62. Analysts generally pointed out that Xiaomi is facing dual challenges in profitability. In the short term, rising memory prices will erode smartphone gross margins; in the mid- to long-term, the phase-out of EV purchase tax subsidies in 2026 will challenge car gross margins. Against this backdrop, actual auto delivery performance and new model developments have become the key core factors determining market sentiment and stock price trends. Smartphone business: Consensus and divergence under cost pressures The three investment banks share a clear consensus on the current state of Xiaomi’s smartphone business: the price surge in memory chips driven by AI demand is a long-term structural challenge that will continue to weigh on overall industry profits. In this context, analysts broadly agreed with Xiaomi management’s strategy of “prioritizing market share, sacrificing short-term gross margins”. To address the situation, Xiaomi has taken steps: On one hand, it has locked in memory supply through 2026 and maintains stable cooperation with major domestic and international suppliers; on the other hand, it has made raising average selling price (ASP) and expanding market share strategic priorities, reiterating its goal of shipping 30 million high-end devices by 2030. Through product premiumization and pricing adjustments, the company hopes to partially offset rising cost pressures, though it is widely believed such measures won’t fully offset them. While the trend judgement is unanimous, the banks’ forecasts diverge in terms of specific impacts: - Citigroup is the most cautious, lowering its smartphone shipment forecasts for 2025–2027 to 170 million, 160 million, and 166 million units, respectively, with gross margin forecasts simultaneously lowered to 11.3%, 8.9%, and 9.0%. - Goldman Sachs also warned of gross margin pressure, predicting smartphone gross margin of 8.8% for 2026, down approximately one percentage point from previous forecasts, with shipments estimated at 169 million units, slightly lower than the 171 million units for 2025. - Morgan Stanley stated that since terminal price increases can only partially pass on increased memory costs, Xiaomi will rely more on product mix optimization and other cost-control measures to mitigate the impact. Automotive business achieves breakthrough profitability, tax subsidy policy becomes key divergence There is a strong consensus among Wall Street banks that electric vehicles have emerged as a new growth engine for Xiaomi. In their reports, Citigroup, Goldman Sachs, and Morgan Stanley emphasized that achieving an operating profit of RMB 700 million from this segment in Q3 is a milestone, marking its official emergence as the company's second growth engine. Looking at performance in detail, Xiaomi’s EV segment saw a comprehensive breakthrough in Q3. Revenue reached RMB 29 billion, a year-on-year jump of 199.2% and a quarter-on-quarter increase of 36%, exceeding Morgan Stanley’s expectations. Deliveries continued to climb, with 108,800 units delivered in the quarter and 48,600 units delivered in October alone; the SU7 and YU7 models contributed 15,000 and 33,700 units, respectively. Based on strong growth momentum, Goldman Sachs raised its 2025 delivery forecast to 403,000 units, the most optimistic among institutions. A positive signal worth noting is that the SU7 Pro/Max models’ wait time has shortened to 6–9 weeks, and customers who have placed orders are expected to receive their cars by the end of 2025. However, institutions differ in specific expectations, with assessments of the impact of the 2026 vehicle purchase tax subsidy policy being the main divergence: Citigroup lowered its long-term gross margin forecasts to 25.2%/22.2%/25.3% to reflect the policy impact; Goldman Sachs believes that the shortened delivery cycle can effectively offset about RMB 3 billion in subsidy pressure and sees the company’s profitability as more resilient. Despite forecast differences, all three banks maintained a positive stance. Citigroup pointed out that new EV launches and updates to consumer subsidy policies will serve as positive catalysts; Goldman Sachs believes the 12-month risk-reward remains attractive and suggests investors buy on dips; Morgan Stanley emphasizes that potential news about new models over the next 3–6 months will be a key driver for the stock price. ~~~~~~~~~~~~~~~~~~~~~~~~ The above highlights are from [Chasing Wind Trading Desk](https://mp.weixin.qq.com/s/uua05g5qk-N2J7h91pyqxQ). For more detailed analysis, including real-time interpretation and frontline research, please join [Chasing Wind Trading Desk Annual Membership](https://wallstreetcn.com/shop/item/1000309). Risk warning and disclaimer: The market carries risks; be cautious when investing. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment goals, financial situation, or needs. 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