Li Lu's First Public Conversation with BYD (Part Two): Optimism Based on Rationality and Common Sense Remains Humanity's Best Choice

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（Source: Investor Notes）

The previous part focuses more on reviewing the past, while the next part focuses more on looking ahead.

In other words, the previous part focuses more on why BYD deserved a heavy position and conviction, while the next part explains more about how to view BYD’s future—and what opportunities and challenges this Chinese company faces.

For this interview, Xiao Ya has four points that left a deep impression:

First, Li Lu’s logic for holding a heavy position in BYD and staying committed comes more from first principles thinking, rather than getting stuck or纠结 about minor gains and losses.

“Big things don’t make you confused; small things don’t make you worry.” That was his starting point for decisions at several key BYD milestones.

Second, regarding the past, Li Qian was very candid. He proactively called out several major setbacks BYD had encountered, as well as the company’s mistakes—and the reflection and response from management. The respect for external shareholders was demonstrated to the fullest extent in the conversation.

Facing company issues honestly and respecting external minority shareholders—companies like that are indeed extremely rare.

Third, in this forward-looking discussion, Li Lu gave a very optimistic judgment about the opportunities Chinese companies face, from the perspective of global civilization and the progress of modernization.

Li Lu said that at this point in time, Chinese companies have the opportunity and the capability to produce global champions across all industries.

This may be the most optimistic investor about the future of Chinese companies Xiao Ya has ever seen—perhaps also the most globally oriented investor who loves China the most.

Li Lu said that based on rationality and common sense, optimism is still humanity’s best choice.

But he also repeatedly emphasized that this optimism must be grounded in rationality and based on common sense.

Fourth, whether it’s the mask-related incident or the promotion of trustee responsibility, Li Lu has been conveying a belief through both words and actions: those who help others will be helped by Heaven; those who help others achieve things for themselves; and by mutual success, we can achieve a win-win outcome.

The following is the next part of the interview transcript organized by Xiao Ya.

BYD’s rapid momentum amid problems, Wang Chuanfu’s internal reflection

“Keep a calm mindset—don’t take yourself too seriously”

Li Qian: After Buffett invested in BYD, BYD became widely known. The stock price rose from 8 yuan to 80 yuan—within 1 year it rose to 80, becoming the most watched “handsome guy” in the global, or rather, Hong Kong capital market. In 2009 to 2010, our development also made huge strides forward.

But to be frank, back then our steps were a bit too big. In 2011, in an internal conference, Mr. Wang also began to reflect. At that time, we ran into all kinds of challenges. Actually, the profit and loss statement started to show problems—some profitability issues, heavy investment, and even the balance sheet ran into challenges.

Especially important was that our upstream and downstream partners and customers were harmed. Our automobiles like the F6 and a series of other models were not successful. Our dealers also saw cases of withdrawal from the network, and Mr. Wang was reflecting too. We believed that the past three years were a period of adjustment.

As our most solid investor, during those years of process, did your mindset change?

Li Lu: Yes. What we focus on is the change in the company’s intrinsic value over the long term. The stock price changes truly have not impacted us much. Whether it went up by 10 times, or later fell by 80%, in fact, we didn’t sell a single share, and we didn’t buy any either—we still held the original basic position.

But over these three years, the company itself underwent major changes. On one hand, it surged ahead in many aspects; but on the other hand, amid all that surge, it also made a series of mistakes that the industry might make.

Looking back, why is it that mistakes in these years made BYD enter that well-known “graveyard” for this industry? There is a reason for that.

In different stages of development, other companies have made similar mistakes, and many failed—some even disappeared completely.

So this industry is, first of all, one full of challenges. But one of our most important points is that throughout this expansion, the things we always wanted to do were still to expand our understanding of the car itself, our understanding of its entire component system, and our control over large-scale production. We’re still considering: if batteries develop to a sufficiently advanced stage, then this revolution will happen.

But in this process, we have many industries that need to be nurtured for the future—industries nurturing each other. Yet in the process of nurturing one industry, if you need to nurture another industry too, you become especially difficult and especially hard-pressed, with lots of challenges and risks.

In these three years, we have learned this lesson especially deeply. This matter gave us a big lesson, but it was also the “troubles of growth” and the process we must go through. I didn’t think there was anything special about it.

Because almost every automaker goes through such mistakes. If you can’t get over this hurdle, you enter the graveyard. If you can get over it, you become a great company later. So for us, the real test was still whether we could cross this hurdle.

On this point, we return to the trust we had from the beginning. I believe in our team. I believe we have many innate advantages, and I believe in our learning capability.

Also, over these years, one more thing is that everyone has kept a calm mindset—meaning you won’t take yourself too seriously, no matter how others evaluate you.

In fact, I don’t think I’m anything miraculous, and I don’t think Wang Chuanfu is that miraculous either. The mistakes we should make, we make them. The learning we should do, we do it. We must always insist on learning from mistakes—preferably from other people’s mistakes. Don’t always learn from your own mistakes. The cost of learning that way is quite high.

When you make mistakes, you face reality through learning. Never admit defeat. Keep moving forward—that is the fundamental requirement for a company to keep going.

We’re not learning from others. We are pioneers. Later learning becomes much easier. Being a pioneer is very, very hard. You need to create a market that doesn’t exist, so you must have many different capabilities—but how many, that “degree” is hard to judge.

So in exploring these issues, sometimes making mistakes is necessary, and the cost must be paid.

Li Qian: Every successful company has to go through a series of rebirth-from-the-ashes (phoenix nirvana). It’s impossible for everything to happen in one step.

So I still want to say thank you to you. You have also been an inspiration to my life. I remember that around 2011, I felt like I couldn’t hold on anymore. Faced with all kinds of missteps, I didn’t evade them and I didn’t give up. I also thought: if the company needs to change, we have to find solutions.

I don’t know if you remember—back then, you were still in Los Angeles. I went to Los Angeles, to your office. We also talked deeply for two or three hours.

Li Lu: Yes.

Li Qian: Maybe back then I was younger too, and my expression was more direct. I was looking for a life-saving straw, hoping to make the company better. That conversation was full of inspiration and mattered greatly for my life, because I got answers that satisfied me—or, in other words, I hoped you would keep encouraging me, and I received that.

Using the first-principles approach you just talked about, you told me: in the past, I’ve met a lot of Chinese entrepreneurs who came here to exchange ideas. All the best entrepreneurs I was familiar with—but there aren’t many entrepreneurs like Mr. Wang—so resilient, with such an endless thirst for scientific exploration, and such a strong sense of boundaries.

Because of that point alone, you believed that BYD would definitely become better and better—that was the biggest encouragement you gave me during those two or three hours. I still remember it very clearly.

Later, in the capital market, because at that time you mentioned that one industry supports another industry—especially using the automobile industry to support other industries. And also because Mr. Wang, in terms of personality, is extremely resolute: no matter how business is going, R&D investment cannot be abandoned.

Li Lu: It’s still like this today.

Li Qian: It’s still like this today. So those years, my pressure was also quite high.

From 2012, when we listed on the A-share market; in 2013, when we did some “dim sum” bonds; in 2014, when there was a lightning allotment; in 2015, when we raised 15 billion in A-shares—through this whole process, I exchanged with you quite a lot again. Thanks once more for the encouragement you gave me.

Li Lu: I need to thank you. Thank you for, throughout this process, cultivating the capital market—cultivating patient, long-term investors. For a growth-stage company, this is absolutely crucial. Over all these years, you have kept doing this and done it very well. You also built trust with others, doing very well—I would like to express my thanks to you as well.

BYD’s stock price unexpectedly plunges, Li Lu adds to his position against the trend

Li Qian: In 2014, something interesting happened. One day at about a little after 1 p.m., the stock price suddenly and inexplicably dropped—by a few percent, then by 20% or 30% (as it fell). The phone on my desk, and my mobile phone—I was already too busy to deal with it. It was very interesting: many committed long-term investors called to ask me. That day, the lowest it fell was 50%. A committed long-term investor asked me one question: “Li Qian, is there a problem with the company?” I told them, “No, there isn’t.” Then they bravely and firmly decided to keep buying.

But actually, I had no bottom line in my mind, because in the capital market, a stock price performance isn’t only about whether the company has problems. There are also many external environments. For example, I asked Mr. Wang immediately: “Is there anything going on that I might not know about?” Mr. Wang told me, “No.” With that, I basically dared to answer investors: “The company is fine.”

Then rumors spread like wildfire: that Buffett was planning to reduce his holdings, and that Li Lu was planning to reduce his holdings. At the time, to be honest, I don’t know where you were—but no matter what time it was (even late at night), I gave you a call. Coincidentally, you probably were on a plane in China then. You told me, “Li Qian, I’m on a plane.” I said, “That’s great—you picked up my call.”

I said, “Mr. Li Lu, take a look at the current stock price. What happened to the stock price?” You said, “How did the stock price—?” I said, “The stock price has already fallen by four or five tens of percent. People in the market are spreading that Mr. Li Lu is reducing his holdings.”

At that moment, you gave me a firm answer. You said, “It definitely isn’t me; second, I have full confidence in the company.”

With that response, I dared to send a message to the capital market: first, there’s nothing wrong with the company; second, Mr. Li Lu hasn’t reduced his holdings—Himalaya hasn’t either.

We connected with Buffett on that day—he was probably in the morning in his time zone. We learned he hadn’t taken any action. So the next morning at 7:00 a.m., Mr. Wang and I held a press conference, clarifying things for the market. That day, the stock price rose back by 30%. Later, it returned to its original position.

I also expressed thanks again. You bought more than 100k shares again, because what you saw was the value of BYD—and then you continued to support BYD.

Mr. Wang and I also felt very emotional at the time. Actually, back then, the company’s operating situation wasn’t that it had already reached a turning point. At that time, you were also supporting your conviction—to be firm in your belief in BYD.

In 2020, we thickened the foundation before we reaped the rewards. That year, two things happened. One was the pandemic. BYD brought out the most typical efficiency of “Made in China”—a war of regiments. Our masks. And another was the “Han,” launched in June, which hit the market with one shot and became a success. In this process, what kind of exchanges did you have with Mr. Wang? Since you were a close friend of Mr. Wang, also a supporter and advisor, what was the state of your exchanges with him at that crucial moment?

Li Lu: At the end of 2019 and the beginning of 2020, it was also a sudden event. The earliest cause for these masks was after the Wuhan outbreak just happened. At that time, because we saw the (pandemic) demand, we were extremely anxious. So I initiated an angel foundation in the U.S., mobilizing in the United States—mobilizing all kinds of people, resources, and financial support—to help Wuhan.

At that time, our biggest challenge was that we couldn’t get masks. Getting masks became extremely difficult. I went everywhere to look for them. At first, there were all kinds of difficulties. We resolved them one by one. After that, we had raised money too. I also personally put in a lot of money. But still, we couldn’t get masks, and we only got very few. We bought everything we could get.

At that time, during a holiday, Mr. Wang and I happened to be together. I talked to him about what we were doing. He asked me: “What do you think is the hardest part—the biggest bottleneck and the key point?” I told him: “Masks—that’s my biggest bottleneck.”

He said, “Let me think about it.” That same night, he immediately went back and mobilized all business divisions.

Li Qian: We held meetings—division of labor—

Li Lu: At this point, it could be solved. Honestly, I was also surprised at the time, but indeed after that, slowly he really got it done. And then it was also thanks to Mr. Munger’s help.

We built endorsements with costco as well—using credibility as endorsements. With this kind of manufacturing capability, this is an extraordinary company. The key is that our U.S. certification was relatively complete—certifications that had already started to be used in China and were widely used.

So our first major order was 60 million masks from costco. Because we had Mr. Munger’s endorsement first and then got costco’s first order; after that, demands from around the world came in everywhere at once. In the end, we sold tens of billions of masks globally.

This process was also very interesting. It once again verified: first, BYD’s manufacturing capability is truly boundaryless; its original thinking and first-principles thinking; engineers turning it into reality; and the spirit of trusteeship—not being defeated by difficulties, setbacks, or challenges. And at that moment, a steadfast will broke out. Within a matter of a few months, from having no mask at all, we became the world’s largest mask manufacturer—100 million per day.

At that time, BYD’s cooperation with Berkshire, mutual trust and endorsements between China and the U.S., played a huge role again. It enabled the world, basically from consumers to each state, to the U.S. federal government, and to European countries, to accept BYD’s products in a very short time—their quality, their credibility—and they truly helped countless people.

This also validates what you said earlier: you keep helping others, and you truly get good returns—helping the worthy helps oneself. It was exactly so, vividly so. In just 6 months, it was fully and powerfully reflected. That’s exactly how it was.

Li Qian: Before BYD made masks, China’s total mask production capacity was 20 million per day. BYD drew blueprints in 3 days, produced the production lines in 7 days. Starting from 5 million per day, within a little over a month we reached 100 million. That was 5 times all of China’s total mask capacity. It also made a significant contribution to strengthening ties between China and the world, and also to China’s defense this time. It showcased China’s manufacturing capability and advantages. And overseas, it also built a brand—helping people, and that helped.

Li Lu: Yes. At that time, the global production capability outside China was only 20 million per day. Combined with China’s 20 million, the world’s total production power was 40 million. But in the end, BYD alone achieved 100 million masks in those 6 months.

“Truly great companies have no boundaries”

Chinese global companies will emerge in volume

Li Qian: Today, BYD is already a Chinese world champion. But BYD is a dream-filled company. We are transforming from being a world champion in China into becoming a global leader. In your view, what other paths does BYD still have to go? What difficulties and challenges will it still face? In terms of technology, corporate governance, corporate culture, global responsibility, and so on—I believe none of this will happen overnight.

I especially want to hear ideas and suggestions from you, this wise person, based on human civilization history, the progress and iteration of technology, and your discovery of value—what would you add to BYD?

Li Lu: I can’t really call it “wise.” We can say this: a truly great company actually has no boundaries, and its development will not stop; growth has no ceiling.

We have, of course, walked a very long path, but there is still a longer one ahead. At this stage, China’s development has started to enter a new level. All kinds of elements make our development over the coming decades even more worth expecting.

First is what we call the concept of a “global company.” Multinational corporation. In Europe—the early industrialized countries—after World War II, with the exception of the United States, they achieved truly real global business development even if it was based on one country.

Now, at this stage, Chinese companies are beginning to have such opportunities—such energy, such capabilities.

The most important condition that China provides to these companies is that it is a huge, single, big market. It is both singular and unified: from regulation, from openness—while also being huge, and at the same time, it is a globally open market.

When these four conditions combine, it gives champions in the market the chance to become champions globally. And they will surely localize—becoming a part of local economic development, not just exports.

So in this era, global companies based on China, global companies with Chinese roots, will appear. BYD is an important splash in this wave—not the only one. And this process has just begun; there is still a very long way to go.

On another side: after four or five decades of development, China also has started to have talent, technology, and markets—so everything has reached an era of an explosion in creativity. In this era, companies defining industries with original technologies, original products—truly remarkable ones—will emerge in a dense way across almost all fields.

So in this era, for a company with no boundaries, a company that can use first principles to think about its future prospects, with an engineer culture, with the bonus of a labor force—also the bonus of engineers—and with technical accumulation, the creativity it can unleash will be even more brilliant.

At this time, BYD is very lucky. In this era, it has accumulated reputation, technological reserves, talent reserves, scale advantages, product leadership, and brand good will—all combined. In addition, our founders and the company’s employees are still in a period of strong vitality.

Li Qian: Meaning—age range and energy.

Li Lu: Yes. I’ve known Mr. Wang for more than 20 years. His life hasn’t changed much. He still goes from morning to midnight, and then starts again the next day. When we travel together outside, especially as a team, the most important meeting of the day will always be at 11 p.m., hahaha. All the day’s work gets done, and at 11 p.m. we start summarizing again, and then we go to sleep. Then the next morning, we start again with full energy and full drive.

In other words, our boundaries are still far away, and growth is still something worth expecting. At this moment, it’s also an era of quality and technology explosion.

However, even though we often lead in technology, in terms of refined management, we are actually still at a very early stage. We need to manage hundreds of thousands of engineers, hundreds of thousands of employees, even up to over a million employees, plus a long product line in multiple countries. We still need a lot, a lot of exploration to truly achieve refined management, to truly become customer-centric, and to truly make the products excellent and detailed. Also, we have more than 100k patents, and we keep developing new directions through R&D.

So for these potential to be realized, it is always in an expansion and “option extension” process. That means the intrinsic value keeps growing—and that is what we investors care about the most.

Look: we’ve had 23 years. During that time, the stock price dropped by more than 50%—about at least seven or eight times. It seems once it fell by more than 80% too.

Li Qian: Yes. And those gains also happened quickly.

Entrepreneurs and investors both need to think straightforwardly,

earn the money you should earn

Li Lu: Yes, those gains also happened. A situation of 10x in a year also occurred. So in this process, if you have a speculative mindset, it’s hard to truly enjoy the full process.

So think about it more straightforwardly. As either a manager or an investor, you should earn the money you should earn. What you should earn is, in fact, the company’s intrinsic value being realized and growing continuously—until, when it’s slowly recognized by the market, that becomes your share.

Of course, we believe we are also very fortunate. Companies like this are very, very rare. If everyone’s company were always growing, then the world would truly have trees growing up to the sky—that’s not really possible. So companies like this are few and far between—rare as phoenix feathers.

Our good fortune is that very early on I discovered such an extraordinary company and an extraordinary entrepreneur. Then I followed the company as it grew, learned together, and helped a bit along the way—so I became even more at ease.

Li Qian: You’re being modest. It’s your perspective and wisdom that unearthed this—meaning investment is the result of cognition. You believe in it, so you invested in BYD. And thank you for your tolerance toward BYD as well.

Just like the book you wrote—your book “Civilization, Modernization, Value Investing, and China”—which I also really like. In this book, you made a systematic description of the evolution of human civilization and the iteration of modern science, as well as the philosophy of value investing. It’s given me many, many inspirations—for my life, and for my investing as well.

Although the world now seems a bit chaotic, there’s a network phrase now: “the world is just a bunch of makeshift performers.” But you are optimistic. You believe the unified global market is a necessary outcome of human development. And you also believe that Civilization 3.0 should continuously create the value that society and the world require—that’s the fundamental thing.

Your answer to my questions just now should be able to perfectly explain this too. As long as BYD keeps working hard and continuously creates better and higher value for the world and humankind, that is our mission. Then we can contribute to world civilization, and we don’t need to worry about how chaotic or “makeshift” the world is—we just do well what we should do.

With so much we just discussed, Mr. Wang has many characteristics that never change. Today, BYD is standing on a new historical stage. If, in the past 20-plus years, your interactions with Mr. Wang and your friendship have so many things that remain unchanged, I also want to ask: what has changed about Mr. Wang? It must have changed a lot.

The compounding of learning,

based on rationality and common sense optimism

Li Lu: I think the most admirable quality of Mr. Wang is his ability to learn—his continuous learning ability.

So learning itself is also learning “how to learn.” After that, his learning keeps moving forward in the form of compounding interest. I truly feel that over the past 20-plus years, Mr. Wang’s understanding of business, his understanding of different technologies, his implementation of a long-term goal and the short-term quantification, his management of an increasing number of employees and assets, and how markets face all kinds of complex issues—he’s changed in astonishing ways, because that’s the power of compounding.

But it’s not just Mr. Wang. Our management team also stays in this mode—(Li Qian added: we keep holding on, we keep working hard). And our next-generation, younger organizational structure gradually turns into a learning organization.

It should be said that the process hasn’t fully completed yet—we still have a lot to learn. Especially because our growth rate, particularly during rapid growth, will definitely create many, many new problems.

Our past experience over the last five years can’t be replicated forever. At that time, consolidating and digesting (a period of consolidation) is inevitable. So if we have a realistic expectation for the future, the mistakes we will make—new mistakes—and the consolidation we need—are all inevitable. There’s nothing big about it.

These experiences from the past give us more confidence. When we encounter different issues and different challenges, we truly deal with them step by step.

If you walk a very, very long road, it’s really your left foot forward, then your right foot forward—left foot forward—step by step. The key is to keep moving—keep moving. If you keep at it, you can go very far. At the same time, you must firmly believe in the direction you’re walking.

My view is: based on rationality and common sense, optimism is still humanity’s best choice.

But it must be based on rationality, and based on common sense. On this foundation, a firm optimism is what gives us the drive to keep going.

Our past imprints help us have even more confidence. We keep learning, which gives us more rationality, more attempts, and clearer direction. But still, the steadfast footprints are the only way leading to success.

So I hope we can still see BYD walking another long and far journey together.

Li Qian: As a true friend and partner who has been with BYD all the way, I want to ask you for your most sincere blessing or expectation for BYD for its next 30 years.

Li Lu: I’ve already said it. I don’t have anything special. I’m not a special person. I don’t have the skills to write an inscription. Just take one step at a time, one footstep after another. No need to think so far ahead. Just keep moving forward each day in a down-to-earth way.

I really like a quote from Mr. Munger: when you wake up every morning, you should be a little smarter than yesterday, and learn a little more. Every day like this—compounding power is unimaginably powerful.

External consolidation can happen a lot. But internal progress is something only we can feel. As long as we can learn a little more every day than the day before, we can go very far, very far. This attitude is the fundamental reason an enterprise can keep going long-term.

We say not only individuals, but also build the entire company into a learning machine—one that can keep moving forward through compounding. Then we can go for a long time.

Li Qian: This is for BYD, and also for me. I thank you for today’s more than one-hour-plus conversation. And I also thank you for the mental encouragement and support you’ve given me all along. I hope that in the future there will be opportunities for me to seek your advice again. I also hope you will keep accompanying BYD. And we will continue together—each day being a little better than the day before, a little smarter. Thank you, Mr. Li.

Li Lu: Thank you very much. As a shareholder, I’m truly grateful—grateful to all BYD employees, whether today’s, those from the past, or those in the future. Thank you very, very much.

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