Xiaomi's Share Price Decline: Assessing Long-Term Resilience Amid Short-Term Volatility

The Decline: A Confluence of Market Realities

Xiaomi's share price has entered a correction phase, trading at HKD 52.75 in late August 2025-a 13% drop from its annual peak, according to Invezz. This decline reflects a confluence of factors, including waning consumer demand for smartphone upgrades and concerns over an elevated price-to-earnings (P/E) ratio of 34.2x, significantly above its fair valuation estimate of 26.4x, according to an analysis by Simply Wall St. A discounted cash flow (DCF) analysis further underscores overvaluation, suggesting the stock is trading 37.9% above its intrinsic value of HK$38.69, per that Simply Wall St analysis.

The smartphone segment, once a growth engine, now faces stagnation. While Xiaomi's Q1 2025 revenue hit $16 billion, its smartphone division grew only 2% year-on-year, lagging behind competitors like Samsung and Apple, [Xiaomitime] reported(https://xiaomitime.com/xiaomis-q1-2025-growth-falls-short-of-competitors-in-worldwide-industry-39090/). This highlights a critical vulnerability: overreliance on a maturing market.

Strategic Pillars: IoT and EVs as Growth Engines

Despite these headwinds, Xiaomi's long-term resilience hinges on its ecosystem-driven strategies in IoT and electric vehicles (EVs). The IoT business, generating 8.7 billion yuan in quarterly gross profits, and internet services, contributing 6.9 billion yuan, subsidize the automaker's high-risk EV venture, according to Hello Chinatech. This "platform-subsidized manufacturing" model has narrowed the EV division's operating loss to 300 million yuan in Q2 2025-just 6,000 yuan per vehicle sold, the Hello Chinatech piece notes.

The EV segment itself is a standout performer. Revenue surged 233% annually in Q2 2025, with 81,302 vehicles delivered, including the SU7 sedan and the highly anticipated YU7 SUV. Goldman Sachs has raised its 2025 EV sales forecast to 350,000 units, citing Xiaomi's aggressive production expansion and product pipeline, according to EVmagz. Analysts at Morgan Stanley note that the SU7 Ultra and YU7 models could command higher average selling prices, accelerating the path to profitability, as covered by the Global Carbon Fund.

Navigating Global Challenges: Tariffs and Production Constraints

Xiaomi's global ambitions face hurdles, particularly in Europe, where tariffs on Chinese EVs could reach 48%, a point raised in early coverage of the correction. To mitigate this, the company is adopting a "showroom-first" strategy, prioritizing brand immersion in European markets ahead of a 2027 launch, according to China Biz Insider. A Munich-based R&D center, staffed by former BMW executives, is tailoring vehicles to local preferences. While a European factory remains a long-term consideration, Xiaomi is leveraging its existing SU7 and YU7 models to build demand.

Production bottlenecks, however, persist. Delivery wait times for its EVs exceed 52 weeks, but the company's Q2 2025 gross margin of 26.4%-up from 20.4% in Q4 2024-suggests pricing discipline and cost efficiency. Analysts project the EV business could turn profitable by late 2025, based on recent industry commentary.

Expert Outlook: A High-Conviction Bet?

Goldman Sachs and Morgan Stanley have expressed cautious optimism. The former raised its 2025 EV sales forecast to 350,000 units and predicts a 48% growth in 2026. Morgan Stanley highlights Xiaomi's R&D investments, including a 30% increase in 2025, with a quarter allocated to AI and autonomous driving. These efforts align with Xiaomi's broader "Human x Car x Home" ecosystem, integrating smartphones, IoT devices, and EVs to create a sticky user experience.

Yet risks remain. The smartphone market's stagnation and supply chain vulnerabilities-such as reliance on TSMC for critical chips-could dampen growth. Additionally, the European market's regulatory complexity and high tariffs may test Xiaomi's adaptability.

Conclusion: Balancing Volatility and Vision

Xiaomi's share price decline reflects short-term market skepticism but overlooks the company's structural strengths. Its platform-subsidized model, IoT-driven profitability, and aggressive EV expansion position it to weather near-term volatility. While challenges like European tariffs and production constraints persist, Xiaomi's strategic agility-evidenced by its Munich R&D center and showroom-first approach-demonstrates a commitment to long-term value creation.

For long-term investors, the key question is whether Xiaomi can sustain its 30% growth forecast while navigating global trade dynamics. The answer may lie in its ability to replicate its Chinese success in Europe and leverage AI-driven innovation to differentiate its EVs. As the company inches toward profitability in its automotive division, the current correction could represent an opportunity for those willing to bet on its ecosystem-driven vision.