Goldman Sachs: Xiaomi Q1 Profit Likely to Beat Expectations; New EV Models to Sustain Growth

Overview

Goldman Sachs releases its Q1 2026 earnings preview for Xiaomi Corporation, maintaining its 'Buy' rating and HK$41 target price. The core thesis is that despite pressure on smartphone shipments, gross margins are proving more resilient than feared due to product mix optimization and overseas price increases. Meanwhile, the smart EV business is sustaining order momentum through accelerated new model launches (e.g., YU7 series), with full-year deliveries now forecast at 550,000–560,000 units. Although Q1 EV deliveries declined sequentially—widening losses—the long-term ecosystem expansion narrative remains intact.

Core views

Gross margin resilience is the key focus of this quarter’s report. Goldman Sachs expects Xiaomi’s overall gross margin in Q1 2026 to reach 21.7% (down 1.2 pp YoY but up 0.8 pp QoQ). Specifically, smartphone gross margin is projected at 9.6%, benefiting from SKU optimization, overseas price hikes, and potential inventory provision adjustments (RMB 2.1 billion was provisioned in Q4 2025); AIoT gross margin is expected at 25%, supported by disciplined domestic discounting and overseas expansion; and the Smart EV & Other AI Initiatives segment is forecast at 20.4% gross margin, as strong supply chain capabilities partially offset headwinds from reduced EV purchase tax subsidies and lower deliveries. Revenue shows structural divergence. Smartphone shipments are projected to decline 19% YoY to 33.8 million units, but average selling price (ASP) is trending above expectations at RMB 1,300 (+15% YoY), which should support revenue performance for the rest of 2026. AIoT revenue faces high-base effects, with YoY declines of 22% and 18% expected in Q1 and Q2 respectively, though a recovery inflection point is anticipated in H2. Revenue from Smart EVs and other new businesses is projected to grow 5% YoY to RMB 19.6 billion, becoming the primary revenue driver. The EV business faces near-term pressure but strong long-term momentum. Deliveries are expected to drop from 145,000 units in Q4 2025 to 81,000 units in Q1 2026, resulting in an adjusted net loss of RMB 2.3 billion for the segment. However, new model launches are accelerating: the refreshed SU7 secured over 80,000 orders within 48 days of launch, demonstrating robust demand; the YU7 GT and a potential lower-priced YU7 base model will launch by end-May; and two extended-range electric SUVs (EREV SUVs) are expected in Q3. Goldman Sachs slightly adjusts its forecast, assuming total 2026 smart EV deliveries of 560,000 units (up from 550,000) to meet annual targets. On financial forecasts, Goldman Sachs lowers its 2026–2028 total revenue estimates by 1–4%, primarily reflecting downward revisions in Smart EVs and other new businesses, while keeping smartphone x AIoT revenue largely unchanged. Despite upward revisions of 0.3–0.5 pp to gross margin forecasts, non-IFRS EPS estimates for 2026–2028 are reduced by 2–5% due to lower profitability contribution from the EV segment.

Analysis framework

Goldman Sachs employs a Sum-of-the-Parts (SOTP) valuation methodology—a standard approach for diversified tech conglomerates—to better reflect the distinct value drivers of mature core hardware businesses versus high-growth EV operations. For the core business, a forward EV/NOPAT multiple of 16x is applied; for the EV segment, a discounted cash flow (DCF) model is used, assuming a 12% WACC and 3% terminal growth rate, yielding an EV valuation of USD 46 billion. A 10% holding company discount is then applied. This approach helps investors understand how Xiaomi’s emerging businesses can re-rate the overall equity despite near-term hardware margin pressures.

Methodology notes

• Valuation MethodSOTP Valuation

  SOTP Valuation

  Separately valuing different business segments (e.g., smartphones, IoT, EVs) and summing them up; suitable for companies with diverse businesses at different maturity stages, enabling more precise valuation of each component.

• Valuation MethodDCF (Discounted Cash Flow)

  DCF (Discounted Cash Flow)

  Estimating asset value by forecasting future free cash flows and discounting them to present value; Goldman uses this to assess the intrinsic value of the EV business, which is still in its investment phase and not yet fully profitable.

• Industry/Market Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition

  Breaking down revenue changes into volume (shipments) and price (ASP) components; the report notes that while smartphone volumes declined, higher ASP offset the negative impact, validating Xiaomi’s premiumization strategy.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Xiaomi Corporation-W (01810.HK)

  Primary beneficiary: core business provides cash flow support; EV business offers growth optionality

  Strengths

  World’s third-largest smartphone brand, leading AIoT platform, strong supply chain integration, strong order backlog for SU7/YU7 models

  Weaknesses

  Declining smartphone shipments, near-term EV losses widening, high-base pressure on AIoT revenue

  Comparison

  Compared to pure EV makers, has mature hardware ecosystem and cash flow; compared to pure smartphone vendors, has a second growth curve

  Risks

  EV execution falling short, intensifying smartphone competition

Key data

• Q1 2026 Projected Overall Gross Margin21.7%Down 1.2 pp YoY, up 0.8 pp QoQ; stronger resilience than expected
• Q1 2026 Projected Smartphone Shipments33.8 million unitsDown 19% YoY, but ASP expected at RMB 1,300 (+15% YoY)
• Q1 2026 Projected Smart EV Deliveries81,000 unitsSharp sequential decline from 145,000 units in Q4 2025
• Q1 2026 Projected Adjusted Net Loss (EV Segment)RMB 2.3 billionWider than Q4 2025 loss of RMB 1.5 billion
• 2026E Total Smart EV Delivery Forecast560,000 unitsIncludes SU7, YU7, and new EREV SUV models
• Target PriceHK$41.00Based on SOTP valuation, implying 31.7% upside

Impact & implications

The report views Xiaomi as being in the early phase of its 'Human-Car-Home Full Ecosystem' strategic expansion. Despite near-term margin volatility in smartphones and EVs, its strong balance sheet, ecosystem integration capabilities, and scale-driven cost advantages will enhance competitiveness in the EV space. Investors should monitor gross margin resilience and the sustained order pull-through from new model launches, which help alleviate concerns about widening EV losses.

Risks

• Intensifying global smartphone competition and limited market share gains
• Greater gross margin pressure in smartphone/EV segments
• Slower-than-expected brand premiumization and EV execution
• Escalating geopolitical risks and regulatory uncertainty
• Weak macro environment dampening smartphone/IoT demand
• FX volatility risk

What to watch

• Performance of the late-May summer launch event (including YU7 GT and potential lower-priced YU7 variant)
• June 18 shopping festival sales results
• MIIT filings for the extended-range electric SUVs (EREV SUVs) expected in Q3