BYD Company, China's leading electric vehicle (EV) maker, saw its stock plummet by as much as 5.42% on October 31, 2024, despite reporting record quarterly earnings that surpassed rival Tesla's revenue for the first time. The market reaction underscored concerns over the company's profitability and rising costs.

For the third quarter of 2024, BYD posted a net profit of 11.61 billion yuan ($1.62 billion), an 11% year-over-year increase. However, this fell short of analysts' expectations, triggering a sell-off in the company's shares. The stock closed 3% lower in both Hong Kong and Shanghai trading on the day the results were released and continued its decline on the following day.

Analysts attributed the share price drop to BYD's net profit per car slightly missing estimates, as well as the sharp rise in its research and development (R&D) costs and operating expenses. The automaker's net profit per car stood at 9,300 yuan ($1,307), lower than the previous year's 11,400 yuan and the second quarter's 8,500 yuan.

BYD's R&D expenses surged 52% sequentially to 13.7 billion yuan in the third quarter, highlighting the company's efforts to stay ahead of rivals in the autonomous driving space. While this investment could position BYD for future growth, it weighed on investor sentiment as it could impact the company's profitability in the near term.

Despite the concerns, analysts remain optimistic about BYD's prospects. Nomura, Bernstein, Deutsche Bank, and Citi all maintained outperform or buy ratings on the stock, with Citi raising its target price to HK$500 from HK$488 and Bernstein increasing it to HK$350 from HK$310. Analysts cited BYD's large scale, cost controls, improving sales in China and abroad, as well as its competitive edge in the EV sector and vertically integrated business model as key strengths.