Xiaomi's EV and AI Surge: Margin Gains and Market Dominance Ahead

Xiaomi's Q1 2025 earnings report has sent a resounding message to investors: the company is no longer a fringe player in the electric vehicle (EV) and artificial intelligence (AI) markets. With its innovative business division—comprising EVs and AI—reporting RMB 18.6 billion in revenue and a 23.2% gross margin, Xiaomi is proving that its pivot to high-growth sectors is not just a bold experiment but a strategic triumph. This article dissects the financial and operational catalysts behind Xiaomi's ascent and argues that now is the time to position for long-term gains.

The Margin Story: From Losses to Leadership

Xiaomi's EV/AI division, which now explicitly includes AI alongside its automotive ventures, achieved a 23.2% gross margin in Q1 2025, up sharply from 20.4% in Q4 2024. This improvement reflects both rising economies of scale and operational discipline. Despite an adjusted net loss of RMB 500 million in the quarter (narrowing from RMB 700 million in Q4 2024), the division's revenue grew by 11% sequentially to RMB 18.1 billion, driven by 75,869 SU7 sedan deliveries—an 8.9% jump from the prior quarter.

SU7 Demand Resilience and YU7's Tesla Challenge

The SU7's strong performance, which has now reached 258,000 cumulative deliveries since its March 2024 launch, underscores Xiaomi's ability to capture market share in a crowded sector. The upcoming YU7 SUV, slated for a July 2025 launch, is positioned to directly compete with Tesla's Model Y. Priced at RMB 529,900 for its Ultra variant and with high-end versions targeting a RMB 60,000–70,000 premium over rivals, the YU7 aims to leverage Xiaomi's ecosystem of connected devices and AI-driven features. Analysts at Deutsche Bank forecast 100,000 YU7 deliveries in 2025, alongside 280,000 SU7 sales, pushing total EV revenue to unprecedented heights.

Margin Expansion Catalysts: Efficiency and Chip Innovation

Xiaomi's margin gains are no accident. The company is aggressively optimizing its supply chain, reducing costs through vertical integration and self-developed chips. Its AIoT platform, connecting 943.7 million devices, provides a data-rich ecosystem to refine AI algorithms and EV software—a critical edge over competitors. Additionally, R&D spending rose 30.1% year-over-year to RMB 6.7 billion, prioritizing advancements in battery tech and autonomous driving. These investments are already paying off: the SU7's 8.86% sequential delivery growth in Q1 occurred despite seasonal slowdowns, proving demand resilience.

Navigating Risks: Safety Concerns and Competitive Pressures

Skeptics point to risks, including a fatal highway accident involving an SU7 in driver assistance mode and accusations of misleading advertising. While these issues prompted a public apology, Xiaomi's swift response and stock price rebound (now at a $170 billion market cap, surpassing BYD) suggest investors trust its execution. Meanwhile, Tesla's Model Y remains a formidable competitor, but Xiaomi's China-focused pricing and ecosystem advantages—paired with AI-driven features—position it to capture a growing domestic market.

Why Invest Now?

Xiaomi's valuation reflects not just its current performance but its long-term trajectory. With the YU7's launch imminent and margins expanding, the company is primed to transition from loss-making growth to profitability. The RMB 18.6 billion EV/AI revenue base and 23.2% gross margin are just the beginning; as the YU7 scales and AI integration deepens, margins could rise further.

Final Call: Buy Before the YU7 Surge

Investors should act now. Xiaomi's Q1 results validate its EV/AI strategy, and the YU7's Tesla challenge is a catalyst that could accelerate valuation multiples. While risks exist, Xiaomi's execution—evident in margin improvements, ecosystem synergies, and delivery growth—justifies its premium. With $170 billion in market cap and a 47.4% year-over-year revenue surge, this is a company to bet on before its next wave of growth hits the market.

Actionable Takeaway: Accumulate shares ahead of the YU7 launch, targeting entry points below RMB 20 per share. Xiaomi's blend of margin expansion, product momentum, and AI-driven innovation makes it a rare EV play with both growth and profitability on its side.