Short sellers betting on a decline in the share price of Chinese tech giant Xiaomi Group are reaping significant profits. Surging prices of memory chips, coupled with a slowdown in once-hot electric vehicle sales, have raised market concerns about Xiaomi's earnings outlook.
According to Bloomberg on Friday (March 13), Xiaomi's Hong Kong-listed shares have dropped 44% from last September's peak, dragging down the performance of the Hang Seng Tech Index the most during the same period.
Data from US fintech and data firm S3 Partners LLC shows that this decline has brought short sellers about $1.8 billion (USD 2.3 billion) in mark-to-market gains.
With Xiaomi set to announce its results later this month, investor sentiment remains cautious. The market is concerned that rising chip costs will erode the profit margins of Xiaomi's low-priced smartphones.
With Xiaomi set to announce its results later this month, investor sentiment remains cautious. The market is concerned that rising chip costs will erode the profit margins of Xiaomi's low-priced smartphones.
At the same time, cooling demand for what was once the wildly popular Xiaomi electric vehicles is also adding to bearish sentiment.
Pictet Asset Management senior investment manager Gareth Pan said Xiaomi is facing multiple headwinds, and the shortage of memory chips is pressuring its two core businesses. He stated: “The competitive landscape in electric vehicles has clearly deteriorated. As rival brands flood in, Xiaomi's new models can no longer guarantee full order books.”
This double blow has made Xiaomi a “consensus short target” as described by Goldman Sachs in November last year. Just months before, market hype around Xiaomi’s push into EVs had sent the stock to historical highs.
Pictet Asset Management senior investment manager Gareth Pan said Xiaomi is facing multiple headwinds, and the shortage of memory chips is pressuring its two core businesses. He stated: “The competitive landscape in electric vehicles has clearly deteriorated. As rival brands flood in, Xiaomi's new models can no longer guarantee full order books.”
This double blow has made Xiaomi a “consensus short target” as described by Goldman Sachs in November last year. Just months before, market hype around Xiaomi’s push into EVs had sent the stock to historical highs.
S3 Partners data shows Xiaomi’s short interest has risen from about 2% in September last year to 7.5% of freely traded shares. The financial analytics firm says, by ‘Z score’ (deviation from historical norm), this level ranks among the highest in the Hang Seng Tech Index constituents.
Driven by AI demand, a shortage of memory chips has driven prices higher, impacting numerous global manufacturers. The market perceives Xiaomi as being more vulnerable to these effects than high-end brands like Apple.
According to investment bank Jefferies, about 60% of Xiaomi’s phone sales come from models with an average selling price below $150.
Gerald Gan, Chief Investment Officer of Singapore-based independent asset manager Reed Capital Partners, said rising component costs are squeezing the already low profit margins of Xiaomi’s smartphone and IoT business, especially for memory and processor chips.
He further noted that this is compounded by rising commodity prices and weak Chinese retail demand, amplifying the pressure. These factors make it especially hard for Xiaomi vis-à-vis competitors to absorb rising costs.
The EV business is under pressure as well. Fierce competition and sharp discounting have weighed on several Chinese consumer sectors. In February, Xiaomi delivered just over 20,000 vehicles, compared to more than 39,000 in January. The market believes that the launch of new models will be crucial for Xiaomi to achieve its 2026 goal of 550,000 deliveries.
Bing Yuan, fund manager at French asset management company Edmond de Rothschild, said: “Xiaomi remains a strong growth story, but in China’s highly competitive EV market, Xiaomi is no longer seen as an obvious ‘standout,’ and the valuation premium that the market previously assigned is naturally being compressed.”
Xiaomi will announce its quarterly results on March 24, potentially providing a quantitative assessment of the impact. According to Bloomberg consensus data, Xiaomi’s net profit is expected to drop 23% year-on-year, with sales growth slowing to 7.5%—the lowest in more than two years.
The share price drop has also compressed valuations. Currently, Xiaomi trades at about 18 times forward earnings, below the five-year average of 21 times. Meanwhile, consensus forecasts for earnings per share in the next 12 months have been trimmed about 20% from October’s historical peak.
Caroline Cai, CEO of New York-based Pzena Investment Management, said Xiaomi’s shares are still far from cheap. She believes the company’s mid- and low-end smartphones will continue to face challenges, and that “there is less room to maneuver” in the face of surging memory chip prices.