Xiaomi’s Strategic Push Meets Soaring Component Costs

Xiaomi's shares closed the trading week lower, declining 2.01 percent to 37.10 HKD. The company finds itself navigating a dual challenge: aggressively pursuing growth in the electric vehicle (EV) sector while contending with a severe cost inflation in its core smartphone business that threatens profitability.

A significant headwind for Xiaomi's smartphone division is emerging from the supply chain. According to data from TrendForce, prices for critical components are projected to rise sharply in the current first quarter. DRAM prices are forecast to increase by 55 to 60 percent, while NAND Flash chip costs are expected to climb 33 to 38 percent quarter-over-quarter.

This dramatic cost escalation presents a difficult choice: absorb the higher expenses and accept a direct hit to profit margins, or attempt to pass them on to consumers and risk losing market share in a competitive environment. The component shortage has already prompted analysts at Counterpoint Research to revise their outlook, lowering their 2026 forecast for global smartphone market growth by 2.6 percentage points.

EV Ambitions Accelerate with Aggressive Promotions

Concurrently, Xiaomi is intensifying its competition in the electric vehicle market, directly targeting Tesla's market share. The company has launched a new financing campaign for its SU7 model designed to lower the barrier to entry in the premium segment. The promotional terms, effective immediately, include:
* A down payment starting from just 49,900 RMB (approximately 7,160 USD)
* Monthly installments beginning at 2,593 RMB
* An incentive of free "Zero-Gravity" seat upgrades for orders placed before the end of February

Should investors sell immediately? Or is it worth buying Xiaomi?

Management is also preparing for the April market launch of the next-generation SU7. With a starting price set at 229,900 RMB, the move signals Xiaomi's commitment to its expansion strategy despite an intensifying price war in the EV industry.

Share Buyback Deployed to Bolster Confidence

In a move to counter selling pressure and demonstrate confidence, Xiaomi's leadership initiated a share repurchase program. On January 14, the company purchased 4.0 million of its own Class B shares for approximately 151.1 million HKD. This action indicates that management views the current share price as attractive despite operational headwinds and is utilizing its liquidity to provide market support.

In the near term, however, concerns over eroding margins dominate investor sentiment. While the EV division is squarely focused on growth, the exploding cost structure for memory chips remains the pivotal pressure point for Xiaomi's upcoming quarterly financial performance.