BYD's shares dropped even though it reported that its second-quarter profit rebounded, amid concerns over weak domestic demand and the Chinese EV maker's recovery can be sustained.

Its shares fell 6.7% to 85.80 Hong Kong dollars, equivalent to $10.94, by midday Monday in Hong Kong. Its Shenzhen-listed shares dropped 4.2%.

The losses came as BYD's business in China continues to struggle, even while overseas markets drive a recovery in earnings.

BYD's second-quarter net profit was 8.25 billion yuan, equivalent to $1.23 billion, jumping 30% the same period a year earlier, a Wall Street Journal calculation showed. The surge in profit came even though revenue declined 3.2% on year.

Nomura said it considered BYD's first-half earnings to be a milestone as the automaker has started to improve profitability thanks to its sustained efforts in overseas markets. The stronger overseas sales helped lift the company's gross margin even as domestic demand remained weak.

More than half of BYD's revenue came from overseas markets for the first time, underscoring its transformation toward becoming a global auto player, the Nomura analysts said.

The Chinese auto giant's overseas vehicle sales in the first half of the year rose 71% compared with the same period a year earlier, with overseas revenue at 53% of its total.

However, investors remain focused on whether BYD can restore profitability in its home market. The company has to operate in a highly competitive Chinese auto market, where price competition has pressured margins across the industry.

BYD's loss per vehicle in the domestic market narrowed to about 2,200 yuan in the second quarter from 4,500 yuan in the first quarter, putting breakeven within reach in the third quarter, Jefferies analysts wrote in a note.

The next catalyst for the Chinese market may come in September and October, during the traditional season for peak auto sales, Nomura said.