Xiaomi's Dual Play: Auto Expansion Meets National Subsidies—Is the Tech Giant Primed for a Windfall

Xiaomi Group (1810.HK) released its Q1 2025 financial report (as of March 2025) after the Hong Kong market closed on May 27, 2025, Beijing time. Key highlights:

1. Overall Performance: Revenue of 111.3 billion yuan, up 47% YoY, with the better-than-expected growth primarily driven by IoT. Gross margin was the standout this quarter, with IoT and automotive gross margins reaching 25% and 23%, respectively.

2. Smartphones: 50.6 billion yuan, below market expectations of 51.3 billion yuan, with overseas markets dragging. Driven by domestic subsidies, $XIAOMI-W(01810.HK) saw domestic smartphone sales grow 40% YoY, but "weakness" overseas limited global sales growth to just 3%.

3. IoT: 32.3 billion yuan, significantly boosted by domestic subsidies, with growth hitting 50% for two consecutive quarters. As Xiaomi's IoT product lineup—including home appliances, wearables, and tablets—benefits from subsidies, the segment continues to outperform expectations.

4. Internet Services: 9.1 billion yuan, in line with expectations. Growth was mainly driven by advertising, while value-added services stagnated. User growth for MIUI rose 9% YoY, but ARPU increased only 3%.

5. Automotive: Q1 auto-related income totaled 18.6 billion yuan, meeting expectations. Deliveries reached 76,000 units, with an ASP of 239,000 yuan. Automotive gross margin improved to 23.2%, well above the expected 20.8%. With margin expansion, the segment’s operating loss narrowed to 500 million yuan.

6. Profit: Core profit of 10 billion yuan, with adjusted net profit at 10.9 billion. Driven by revenue growth, margin expansion, and lower expense ratios, core profit doubled YoY.

Dolphin Research’s View: Xiaomi delivers strong results again; focus shifts to subsidy sustainability and YU7’s performance.

Xiaomi’s IoT segment, buoyed by subsidies, extended its strong performance from last quarter, becoming the primary driver of revenue outperformance.

Beyond revenue, the quarter’s biggest surprise was gross margin expansion, led by IoT and automotive. IoT margin gains stemmed from subsidies, while auto margins benefited from higher capacity utilization at Plant 1 and rising vehicle ASPs.

Key operational focus areas:

1. Automotive: Monthly deliveries averaged 25,300 in Q1, already 200% of Plant 1’s designed annual capacity (150,000 units).

Given current sales, the full-year target of 350,000 units may be conservative. Jan-Apr deliveries hit 104,400, with monthly sales stabilizing at ~29,000. At this pace, Plant 1 alone could deliver 336,000 units annually. With Plant 2 starting production in H2, exceeding 350,000 is likely—Xiaomi may revise its target to 400,000.

2. Traditional Hardware: IoT’s outperformance was subsidy-driven. Smartphone revenue growth slowed, with domestic sales up 40% but overseas declining sharply. Overall smartphone demand remains subdued; hardware growth hinges on subsidy continuity.

For valuation, Xiaomi’s traditional and auto businesses are assessed separately. Assuming a 20-25x PE on 2025 core operating profit (+36% revenue, +2.4ppt margins, 15% tax rate), the traditional business could be worth 800-1000 billion yuan, with the rest attributed to auto segment. Xiaomi Auto’s 2025 revenue may approach 100 billion yuan, but supply constraints justify a premium PS multiple. Once order backlogs shrink from 10 months to 3-5 weeks, peer valuations will become more relevant.

Current bullish narratives—"subsidy-driven growth" and "overflowing auto orders"—remain intact, with earnings confirming Xiaomi’s cyclical strength. Longer term, subsidy sustainability and YU7’s success (as a potential million-unit/year product) will be critical. Monitor order trends and delivery cycles for updates. For more, see Dolphin Research’s upcoming management meeting notes.

Dolphin Research’s detailed analysis:

I. Overview: Subsidies Fuel IoT, Auto Hits Full Throttle

Xiaomi now reports "Smartphone x AIoT" and "Auto & Innovation" segments, reflecting its automotive focus. The latter’s standalone disclosure underscores its strategic importance—and the trillion-yuan market cap hinges on auto’s realization.

1.1 Revenue

Q1 revenue rose 47.3% YoY to 111.3 billion yuan (vs. 109.0 billion expected), led by IoT and autos. IoT drove the beat.

1) Legacy business (Smartphone x AIoT): 92.7 billion yuan (+22.8% YoY), powered by IoT (+58.7%). Smartphones and internet services grew ~10%.

2) Auto & Innovation: 18.6 billion yuan, matching SU7 delivery estimates.

1.2 Margins

Gross margin hit 22.8% (vs. 21.4% expected), lifted by IoT and autos.

a) Legacy margin: 22.8%. Appliances, tablets, and wearables benefited from subsidies; smartphones were flat. Subsidy impacts vary by product.

Other legacy businesses posted a 340 million yuan gross loss (e.g., AC installation services). Adjusting for this, IoT margin would be below the reported 25.2%.

Smartphone margins fell to 12.4% due to higher component costs, but legacy margins still came in ahead thanks to IoT.

b) Auto margin: 23.2% (vs. 20.8% expected).

After Q4 2024 deliveries of 23,000+ (20.4% margin), Plant 1’s utilization hit ~200% of its 150,000-unit annual capacity. The margin beat also reflected the February launch of SU7 Ultra.

With output stabilizing at ~29,000/month in Mar-Apr, Q2 auto margins may rise further.

Auto margins now exceed legacy business. Scaling production may push auto margins higher, potentially turning profitable sooner.

II. Autos: 350K Target Too Low? Aim for 400K

Auto revenue (18.1 billion yuan) and peripherals (18.6 billion total) met expectations.

Deliveries: 76,000 (known), ASP: 238,000 yuan (+2% QoQ). SU7 Ultra’s February launch lifted ASPs.

Q1 margin: 23.2% (see above). Short-term elasticity depends on product mix. SU7 Ultra shares production lines with SU7; Plant 1’s max output is ~360,000 units annually. With orders exceeding supply, ASPs reflect backlog-driven allocation.

The 350,000 full-year target seems low—Jan-Apr deliveries hit 104,400 (~29,000/month). At this pace, Plant 1 alone could deliver 336,000. With Plant 2 starting in H2, 400,000 is achievable.

Last week’s YU7 preview (Xiaomi (Minutes): Can "National Icon" YU7 Challenge Model Y?) positioned it as a Tesla Model Y rival in the 250,000-350,000 yuan SUV segment.

With backlogs (~200,000 orders) far exceeding monthly output (29,000), H1 auto performance hinges on ASPs/margins. H2’s YU7 and Plant 2 could drive further upside.

Current 10-month delivery waits (vs. peers’ 3-5 weeks) justify Xiaomi Auto’s premium PS multiple. Focus now to orders and new launches.

III. Smartphones: Domestic Strength Can’t Offset Overseas Weakness

Q1 smartphone revenue: 50.6 billion yuan (+8.9% YoY). Despite subsidies, growth slowed due to overseas declines.

Dolphin Research’s breakdown:

Volume: 41.8 million units (+3% YoY).

Domestic shipments surged 40% (subsidy-driven), lifting market share to a record 18.6%. But overseas shipments fell 8.9%, with India down 38%.

ASP: 1,211 yuan (+10.5% YoY).

Higher domestic mix stabilized ASPs above 1,200 yuan. Domestic shipments now exceed 30% of total.

Smartphone gross profit fell 8.7% YoY to 6.3 billion yuan, pressured by memory cost hikes. Q1 margin edged up 0.4ppt QoQ to 12.4% on higher domestic mix.