Chinese Vape Firms Control 90% of Global Supply, but Face Overseas Hurdles

Despite the challenges, Chinese e-cigarette companies have not faltered; instead, they dominate the global e-cigarette market with their strong production capacity. In a rapidly expanding market, the monopolists of production capacity see shipment volume as the key point of competition among new tobacco enterprises.

Even in the face of the four major tobacco companies, they possess enough confidence. They no longer bow to foreign brand owners like domestic clothing and electronics factories.

The rapid growth of the overseas e-cigarette market has benefited not the overseas e-cigarette startups or the four major international tobacco companies, but the domestic e-cigarette OEM companies.
 
Domestic e-cigarette OEM companies are launching their own e-cigarette brands while also taking on OEM work for global e-cigarette brands.

Statistics show that there are thousands of domestic e-cigarette companies, including trade, agency, design, etc.; among them, there are over 500 e-cigarette manufacturers in Shenzhen, forming a complete industrial chain.

China, particularly Shenzhen, has become the global e-cigarette supply center. Currently, among the top 5 brands of small e-cigarettes sold in the U.S. market, 3 are produced by Chinese e-cigarette companies, and all of the top 5 large e-cigarettes are produced and exported by Chinese companies.

However, unlike other OEM industries such as mobile phones and computers, Chinese e-cigarette companies hold the global e-cigarette technology. If you visit an OEM factory in Shenzhen, you will find that top overseas e-cigarettes like Logic, Vuse, Blu, and JUUL may all come from the same factory, produced on different assembly lines.

Moreover, this industrial supporting capability is not replicable; from design to battery cells, every component involved in e-cigarette production can be found on a single street in Shenzhen.

Some say that consumers mainly care about the flavor of e-cigarettes, and whoever masters the formula technology for pods and e-liquids holds the core of e-cigarettes, while the four major tobacco giants control the tobacco formulas, and Chinese companies are merely low-end assemblers.

However, in reality, China stands at the top of the e-cigarette industry:

First, true cigarette enthusiasts do not smoke e-cigarettes, finding them lacking in strength. Therefore, new users have no loyalty to the tobacco formulas of tobacco companies and are more willing to try new flavors beyond tobacco and menthol, such as strawberry, red bean, coffee, etc.

Second, since most users concentrate on a few flavors, the main flavors of e-cigarettes currently only number a dozen, with the only variation being slight adjustments in the flavoring ratios by flavorists.

In a rapidly growing global demand scenario where supply is less than demand, production capacity is fundamental. Currently, 90% of the world’s e-cigarette production capacity comes from China; those without OEM capabilities cannot secure sufficient supplies to capture market share.

For example, according to public reports, in 2016, AIVIP and MCV’s revenues were 915 million and 716 million, respectively, with year-on-year growth of 199.89% and 146.59%, maintaining a net profit of around 20%.

Due to AIVIP’s choice to delist from the New Third Board in 2017, there are no publicly available financial data for 2017. However, MCV’s reported revenues for 2017 and 2018 were 1.566 billion and 3.433 billion, with year-on-year growth of 115.64% and 119.33%, achieving net profits of 220 million and 785 million, respectively.

Mastering all technology and possessing strong component support capabilities give domestic companies super manufacturing capabilities. However, Chinese e-cigarette companies lack the final link: retail channels.

Although they control 90% of the global e-cigarette market, very few have their own sales channels overseas. Once the retail gates are opened, domestic e-cigarette OEM factories will sweep the globe!

In this regard, the development of e-cigarettes is precisely a microcosm of Chinese manufacturing, evolving from assembly and processing to industrial collaboration and core technology mastery, ultimately leading to brand dominance and sales channel monopolization. This change is expected to be completed within the next decade.