On August 19, Xiaomi Corp. released its Q2 2025 financial results: revenue reached 116 billion yuan, representing a 30.5% year-over-year increase; adjusted net profit totaled 10.8 billion yuan, up 75.4% year-over-year. This earnings report attracted significant market attention as it represents another quarterly disclosure following the official launch of Xiaomi's second automotive product, the YU7 series. Market observers are curious about the operational changes that Xiaomi's automotive business has brought to the group.

Based on this financial report, the smartphone business remains the foundation but shows sluggish growth; IoT business demonstrates rapid expansion and has become the largest source of gross profit; internet services maintain stable performance with high gross margins providing crucial cash flow support; and the automotive business shows rapid growth while being "close" to achieving profitability.

The financial results show that Xiaomi delivered 81,300 vehicles in Q2, generating 20.6 billion yuan in revenue with a gross margin of 26.4%. Based on delivery volume calculations, Xiaomi's automotive business achieved approximately 67,000 yuan in gross profit per vehicle.

More importantly, Xiaomi's automotive losses are narrowing rapidly. Operating losses decreased from 500 million yuan in Q1 to 300 million yuan in Q2, representing a 40% improvement. Based on current trends, Lei Jun's previous prediction of achieving profitability in Q3-Q4 2025 appears increasingly feasible.

Xiaomi Corp. stands as one of this year's star companies on the Hong Kong Stock Exchange. Following the YU7 launch in early July, its stock price once surged to HK$60. Before this earnings announcement, the Hong Kong stock closed at HK$52.4, with a market capitalization of HK$1.36 trillion.

Currently, Xiaomi's "breadwinner model" proves successful. However, this model faces significant challenges: smartphone business growth remains sluggish with declining ASP and gross margins; IoT business, despite strong growth, confronts intense competition from traditional giants. The automotive industry represents a capital-intensive sector, and Xiaomi's ability to succeed across multiple battlefields tests more than just resource allocation capabilities.

Comparing Q1 to Q2, Xiaomi's automotive business showed substantial changes. Q2 gross margin improved from Q1's 23.2% to 26.4%. Regarding deliveries, Q1 recorded 75,900 units while Q2 achieved 81,300 units, representing a 7.2% sequential increase. Although the growth rate appears modest, the market focuses on whether Q3 will witness explosive delivery growth following YU7's delivery commencement.

Most importantly, the loss magnitude significantly improved. Q1 automotive business operating losses totaled 500 million yuan, narrowing to 300 million yuan in Q2, achieving a 40% improvement. Corresponding to Xiaomi Corp.'s Q2 operating profit sequential increase of 300 million yuan to 13.4 billion yuan, the automotive business's loss reduction contributed significantly to group operating profit growth.

This improvement pace far exceeded market expectations. Typically, during rapid expansion phases, automotive companies experience gross margin pressure. However, Xiaomi achieved simultaneous improvements in scale and profitability.

Based on multiple respondent perspectives, this success stems from two main factors: The primary driver is single-model scale effects. Xiaomi's quarterly delivery absolute numbers aren't large, but they primarily represent single-model SU7 sales, enabling this scale to generate significant cost amortization effects. Xiaomi SU7's component procurement and manufacturing costs are declining rapidly. Particularly for core components like batteries and chips, increased procurement volumes yield more favorable supplier pricing.

Short-term factors include product mix optimization. Q2 marked the beginning of SU7 Ultra model deliveries, featuring higher pricing and gross margins. Product mix optimization elevated overall gross margin levels.

From a per-vehicle economic model perspective, Xiaomi automotive approaches profitability closely. Theoretically, Xiaomi automotive only needs to reduce per-vehicle allocated expenses by 6,000 yuan, or increase per-vehicle gross profit by 6,000 yuan through pricing increases or cost reductions, to achieve profitability.

Despite high gross margins, Xiaomi automotive remains unprofitable due to excessive expenses. Q2 automotive business operating expenses totaled 5.9 billion yuan, including R&D, sales, and administrative costs. Following automotive industry patterns, per-vehicle allocated expenses continuously decline as delivery volumes increase.

Based on Q2 data projections, Xiaomi automotive needs to maintain monthly average deliveries of 30,000-35,000 units to achieve second-half profitability. An investor following Xiaomi analyzed that with stable monthly deliveries of 30,000 units (quarterly deliveries of 90,000 units) and per-vehicle gross profit of 67,000 yuan, quarterly gross profit would approximate 6 billion yuan. If quarterly expenses remain within 6 billion yuan, profitability becomes achievable.

This target appears within reach: Xiaomi automotive faces no sales concerns for the second half, with the YU7, officially launched at end-June, receiving 289,000 firm orders within one hour. Market estimates suggest current backlogged orders exceed 200,000 units.

Crucially, Xiaomi automotive production capacity is rapidly expanding. First-half deliveries totaled 157,200 units, plus July deliveries exceeding 30,000 units, bringing cumulative deliveries to nearly 190,000 units. To achieve the full-year target of 350,000 units, the remaining five months require maintaining monthly sales of 32,000 units. With Xiaomi's second automotive facility preparing for production, achieving established targets presents no difficulty.

Based on current trends, Xiaomi automotive will likely achieve quarterly profitability by end-2025 or early 2026, potentially earlier than XPeng or NIO.

Although Xiaomi automotive approaches profitability, other businesses must continue "supporting the family" before achieving true profitability. Numerically, Xiaomi automotive's Q2 operating loss of 300 million yuan requires subsidization from other businesses.

Who supports this soon-to-be-profitable "cash cow"?

Q2 smartphone revenue reached 45.5 billion yuan, representing 39.3% of total revenue, remaining Xiaomi's foundation. Simple calculations show Q2 smartphone business gross profit of approximately 5.2 billion yuan (45.5 billion × 11.5%). Despite low gross margins, the absolute amount remains substantial, continuing as an important profit source for Xiaomi.

However, the smartphone business faces challenges: revenue declined 2.1% year-over-year and 10.1% sequentially, representing a concerning signal; shipment-wise, Q2 global shipments totaled 42.4 million units, growing only 0.6% year-over-year with nearly stagnant growth; more worryingly, ASP (Average Selling Price) declined significantly alongside gross margin deterioration.

Q2 Xiaomi smartphone ASP reached 1,073 yuan, declining 11.3% sequentially and 2.7% year-over-year; gross margin of 11.5% decreased nearly 1% both year-over-year and sequentially.

ASP decline stems from multiple factors. Direct causes include product mix adjustments: Q2 witnessed Xiaomi's launch of REDMI A5 series and other entry-level products, lowering overall ASP. Primary reasons involve intensified market competition and premium positioning obstacles: in overseas markets, Xiaomi faces fierce competition from Samsung, OPPO, vivo, and other brands. To maintain market share, Xiaomi adopted more aggressive pricing strategies, causing slow global premium positioning progress.

Xiaomi smartphones also show bright spots. Globally, Xiaomi maintains third position with 14.7% market share. In Southeast Asia, Xiaomi reclaimed smartphone market leadership with 18.9% market share, returning to the top after four years.

If smartphone business raises concerns, IoT business impresses significantly. Q2 IoT and lifestyle products revenue reached 38.7 billion yuan, growing 44.7% year-over-year to historical highs. This growth rate represents the most impressive performance among all Xiaomi businesses.

More importantly, IoT business gross margin reached 22.5%, improving 2.8 percentage points year-over-year. Based on this gross margin calculation, Q2 IoT business gross profit approximated 8.7 billion yuan.

Growth primarily came from smart major appliances, with revenue growing 66.2% year-over-year and 133.7% sequentially. This growth pace far exceeded smartphone business performance. Among smart major appliances, air conditioner shipment increases became the biggest highlight.

Beyond air conditioners, other Xiaomi IoT categories showed solid growth, including wearable products (revenue up 70.9% year-over-year), tablets (revenue up 41.4% year-over-year), and laptops.

IoT business is becoming Xiaomi's new "cash cow." This business maintains higher gross margins with less intense competition than smartphones, enabling "blood transfusions" to automotive business. However, air conditioner market competition within IoT business intensifies daily. Since Q2, traditional giants like Gree and Midea began counterattacks. Xiaomi must maintain growth while addressing competitive pressure from traditional appliance manufacturers.

Q2 internet services revenue totaled 9.1 billion yuan, growing 10.1% year-over-year with gross margin of 75.4%. Despite modest revenue scale, extremely high gross margins make this an important profit source for Xiaomi. Based on this gross margin calculation, Q2 internet services gross profit approximated 6.9 billion yuan.

Advertising business represents the primary internet services revenue source, with Q2 revenue of 6.8 billion yuan, growing 14.6% year-over-year; additionally, gaming business revenue reached 1.1 billion yuan, growing 5.1% year-over-year.

Overall, internet services business maintains very low marginal costs, providing crucial cash flow support for Xiaomi.

Simple Q2 gross profit contribution calculations for each Xiaomi business: total gross profit approximately 26.4 billion yuan, basically consistent with the disclosed 26.1 billion yuan. From gross profit contribution perspective, one important change is IoT business surpassing smartphone business to become Xiaomi's largest gross profit source.

Based on current trends, Xiaomi's "breadwinner model" appears sustainable, with IoT business and internet services gross profit growth covering automotive business losses. Moreover, as automotive business scale expands, loss magnitude continues narrowing.

Xiaomi's "breadwinner model" succeeds particularly due to the company's cost consciousness. Q2 data shows Xiaomi Corp.'s overall expense ratio of 13.9%, declining 2.2 percentage points year-over-year and 3.7 percentage points below pre-automotive Q4 2023 levels.

Typically, companies entering new business areas experience significant expense ratio increases, but after entering automotive, Xiaomi's overall expense ratio not only avoided increases but actually declined.

Specifically, R&D expense ratio reached 6.7%, declining 0.1 percentage points year-over-year; sales expense ratio of 6.7%, declining 0.6 percentage points year-over-year; administrative expense ratio of 1.4%, declining 0.4 percentage points year-over-year.

This expense ratio remains far below new automotive forces. How does Xiaomi achieve this?

Primary reasons involve scale effects. Q2 Xiaomi revenue reached 116 billion yuan, growing 30.5% year-over-year. Rapid revenue scale growth amortized fixed expenses. Using R&D expenses as example, Q2 R&D expenditure totaled 7.8 billion yuan, growing 41.2% year-over-year. Despite substantial absolute amount increases, R&D expense ratio slightly declined due to faster revenue growth.

Xiaomi's R&D investment allocation proves strategic. Q2 R&D expenses primarily supported automotive business. However, this investment isn't entirely "incremental" because much of Xiaomi's R&D investment remains shared. For example, AI algorithms, chip design, and software development serve both smartphone and automotive businesses.

Using Surge O1 chip as example, this chip serves smartphones, tablets, and potentially future automotive applications. This "multiple utilization" strategy enhances R&D investment efficiency.

Sales expense ratio decline deserves deeper analysis, stemming from two aspects: First, marketing efficiency improvements. Xiaomi automotive generates strong discussion topics with inherent traffic, saving substantial marketing expenses. Lei Jun's personal IP effect also provides free marketing resources for Xiaomi automotive.

Second, channel synergy. Xiaomi automotive leverages Mi Home channel networks, avoiding substantial channel construction costs. Q2 witnessed 1,700 new offline store additions, serving both traditional businesses and providing automotive business display and experience spaces.

Overall, Xiaomi's expense control capabilities merit recognition. If Xiaomi maintains expense control while continuing to enhance scale and efficiency, automotive business profitability appears imminent.

However, as automotive business develops deeper, whether this "cost-saving" capability remains sustainable represents an important test for Xiaomi. In the capital-intensive automotive industry, necessary expenditures still require investment.

The aforementioned investor analyzed that automotive business expense structures differ significantly from consumer electronics, especially with rapid autonomous driving and intelligent cockpit technology development requiring more specialized investments; as competition intensifies, Xiaomi may need increased marketing investments to maintain market position. The key involves finding balance between expense control and necessary investments.

Moderate expense control helps enhance efficiency and competitiveness, but excessive expense control may prove counterproductive.