China’s National Vaping Standard Is Imminent, and Dozens of E-cigarette Firms Have Secured Funding

The mandatory national standard for e-cigarettes is expected to be released within the year. "Previously, there was only a local standard in Shenzhen. The establishment and issuance of a national standard will make the entire industry more standardized, eliminating companies with poor technology and quality," said Wang Zeqi, Chairman and CEO of Boulder, on July 4, to the Economic Observer.
 
Boulder partner and CMO Fang Hui stated that due to the mandatory regulations of the "national e-cigarette standard" on hardware and e-liquid, future competition in e-cigarettes will shift towards product competition.

Wang Zeqi, who has been involved with e-cigarettes since 2009, has experienced all cycles of the e-cigarette industry over the past decade. "From the perspective of the supply chain, e-cigarettes can be divided into four levels. The upstream logistics supply chain includes injection molding, rubber, and hardware, which supply to OEMs. Customers provide OEM services for brand companies, which can be divided into those that design their products and those that do not. The lowest level is the channel, which includes product pricing to consumers," Wang said. "It is very difficult for everyone in this value chain to profit equally."

The United States is currently the largest market for e-cigarettes, with a penetration rate of about 7% to 12% in tobacco. Wang noted that there are 350 million smokers in China, but the penetration rate of e-cigarettes is less than 1%, indicating a huge market potential. However, he believes it will be difficult for China to reach the same penetration rate as the U.S.

It is reported that dozens of e-cigarette companies in China have secured funding, with total financing reaching several hundred million yuan, including several leading investment institutions such as ZhenFund, Dongyu Capital, Source Code Capital, and IDG Capital. Many individuals from technology and other fields, such as Luo Yonghao, the founder of "Tongdao Dashi," and former Xiaomi employee No. 21, have also entered this field.

The influx of various players and capital has intensified competition in the industry. "From the first half of 2018 to the first half of 2019, the profit margins in the e-cigarette industry were compressed, with the average gross profit margin declining by 10% to 20%," Wang told the Economic Observer.

Wang estimates that the average gross profit margin in the e-cigarette industry is around 30% to 40%, with net profits under 10%. Most VC-backed companies have negative net profit margins, as they invest all their earned gross profits into the market to increase future market share, which is a normal phenomenon at this stage.

"2019 will be the real watershed for e-cigarettes, so we launched a large-scale marketing campaign targeting the Chinese market this summer," Wang said.