Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: What is the most interesting thing to you about Huawei? [00:00:00] S1: I think Huawei represents a Chinese company that is super vertically integrated, which does a little bit of everything. Part of the founding myth of many Asian companies—take the founding myth of Foxconn, which makes all the iPhones, the Taiwanese manufacturer—started by making something like the plastic television knobs before it made desktops and iPods and iPhones. I forget exactly what, but something related to switchboards is what Huawei started on, until it became a company that makes 5G equipment, base stations, mobile handsets, and a million and one other things, according to parts of Washington, D.C. It also has a really close relationship with the People’s Liberation Army, making some sensitive military goods for them as well. But there are a lot of these Chinese companies that decide, “Why not? Let’s just be vertically integrated.” We’re not only going to make all of our electric vehicles—we’re also going to make the batteries and some of the chips that are powering the vehicles as well. And there is this element of vertical integration that, to go back to one of our earlier points, I want to use to set up a contrast between two of America’s handset companies. First, let’s compare Apple. What is the valuation of Apple now? It’s about three, four trillion dollars. [00:00:00] S0: Many trillion, yeah.
· Dan Wang
[00:00:00] S1: With Xiaomi, whose market cap is, I don’t know, not more than one-tenth of Apple’s valuation—probably not even one-twentieth. Apple has been famously working on a car for about 10 years, named Project Titan, until it decided to throw in the towel a couple of years ago. Xiaomi, which is worth maybe one-twentieth the level of Apple, and which is mostly a handset maker as well as a maker of rice cookers, fans, and all sorts of other household consumer electronic goods—the CEO of Xiaomi declared in 2021, “I’m going to invest $10 billion in making my car. This is going to be my focus. This is going to be my last great entrepreneurial venture.” What happened afterwards? Again, Apple threw in the towel and decided not to make any vehicles. Xiaomi’s first electric SUVs are now on the streets in China. They keep raising their production quantities because a lot of people really love these SUVs and these cars. Most striking to me: a few months ago, there’s a very well-known German racecourse in western Germany called Nürburgring, which has a racetrack nicknamed the Green Hell because it twists through the mountains there. Xiaomi, in its first time entering this race—making its very first car—won one of the speed records, beating established companies like Porsche and BMW. This is a company that had the manufacturing workforce, the ecosystem of suppliers, and to some extent, government support, and it was really able to do something that a much richer company was unable to do. And so this is where I come back to the question: are we undervaluing China? Should we really be looking at measures like Nobel Prizes? Are we undervaluing China because we think too much about the market valuations of big companies like Nvidia and Apple? Maybe what actually matters is a company saying that it’s going to do something—and then actually achieving it. Once it achieves it, it makes some really good products that are genuinely world-beating. That’s something we see with Huawei, with Xiaomi, and with a lot of other companies living in this fiercely dynamic, entrepreneurial environment—tearing each other apart through market competition, sometimes underhanded—and producing great technology champions along the way.
· Patrick O'Shaughnessy
[00:00:00] S0: So if we were to step back, and you frame this whole thing as: okay, the engineering state has its strengths and weaknesses, the lawyerly state has its strengths and weaknesses, and these are the two superpowers. If you were to boil the whole story down to the simplest narrative that you could imagine, how would you do that for, say, a 15-year-old or a 10-year-old—a kid trying to understand the trajectory of the world who may not grasp the subtle difference between lawyerly and engineering? Have you attempted to boil it down even to that level and create the best story for them to understand what’s happening?
· Dan Wang
[00:00:00] S1: What I would point out is that when China decides to do something, it moves really quickly. It’s much more of a whole-of-society, whole-of-government effort, and it’s much more serious about doing big projects. Sometimes that goes disastrously off track because they end up committing to something like the One-Child Policy or Zero-COVID, in which the number is right there in the name. It’s almost an engineering project—there’s no ambiguity about what those things mean. Whereas the U.S. is much more deliberative; it thinks a lot about things. Often, it fails in some of these goals that it tries to pursue. The U.S. couldn’t possibly have achieved Zero-COVID because there was no possible enforcement mechanism to get people actually staying indoors and not going outside in a big way. So the U.S. doesn’t get stupid ideas like Zero-COVID, but it also doesn’t get things that it says it really wants to do, like California high-speed rail. One of my conclusions, one of my new realizations after writing this book, is that maybe there can be too much state capacity. Maybe you don’t want a state to be too efficient. If the engineers are too efficient and they drag society off track, they can go really far before there’s any course correction. You want the ideal level of state capacity that’s much more than what the U.S. has right now, but maybe a little bit less than what China has.
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Are there any other companies that—again, putting my investor hat on—Huawei is a great example, Xiaomi is a great example, Foxconn’s a good example. Any other companies that you think are the most interesting to study for people who are interested in what’s working so well in China, who may want to go visit one of their factories or whatnot? What’s the canon of other companies that should be studied in detail in addition to the ones we’ve talked about so far? [00:00:00] S1: I would love to get to know better a company like Meituan, which again is one of these octopus-like conglomerates. When I visited Meituan in Beijing in 2018, they told me, “We have about 50 core business lines.” And we went, “What? How can you have 50 core business lines?” But I think they really meant it. There are a lot of managers, and they’re really intent on making a lot of these different things work. There’s a great book about Huawei written by my friend Eva Dou, a former reporter for The Wall Street Journal, now at The Washington Post, called House of Huawei, released earlier this year. [00:00:00] S0: Really good.
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Really good. [00:00:00] S1: I endorsed it, and I think it’s really good. I’d also like to understand companies better like Alibaba, BYD, and plenty of up-and-coming firms I’ve never heard of that are working on some pretty interesting things—companies like DeepSeek. All of these deserve much better profiles than what the Chinese government has allowed any reporters or writers to access. These companies generally don’t like to talk to foreigners at the best of times, and then you have an overbearing state that in some cases forbids companies like DeepSeek from speaking with foreigners. But if we could gain real understanding of these companies, that would be amazing. [00:00:00] S0: Do you think that’s in the cards? Do you think there’s a version of the world where those profiles are really good for China—if they’re true, honest, and high-access?