How Long Will the Dividend Period for the Vaping Industry Last? Check the Market’s Professional Data

As people's awareness of health increases and smoking control measures intensify, e-cigarettes are becoming increasingly popular and favored, transitioning from a niche product to one that is widely recognized, even impacting the traditional tobacco industry.

Data shows that by 2019, China's e-cigarette production reached 2.66 billion units, a year-on-year increase of 47%. Most e-cigarette products or their accessories are produced in China, especially in Shenzhen, which manufactures about 95% of the world's e-cigarettes. However, 90% of these e-cigarettes are exported, with the United States being the largest export market.

Many businesses and advocates believe that e-cigarettes can address smokers' health issues and the dangers of secondhand smoke, but the effectiveness of e-cigarettes in smoking cessation remains controversial.

To this day, e-cigarettes are no longer just seen as smoking cessation products; their use is increasingly regarded as a trend and a culture.

The e-cigarette industry is thriving

It is common knowledge that smoking is harmful to health, and many people have tried to quit smoking.

As an electronic product that mimics cigarettes, e-cigarettes vaporize nicotine and other substances into vapor for users to inhale, resembling traditional cigarettes in appearance, smoke, taste, and sensation.

A survey shows that the global e-cigarette industry market size grew from $2 billion in 2012 to $8 billion in 2015, reaching $10 billion in 2016, with an average annual compound growth rate of 49.5%. In 2011, China's e-cigarette production was about 111 million units, and by 2019, it reached 2.66 billion units, with an average annual compound growth rate of 71.6%.

Currently, the supply and demand pattern for e-cigarettes both domestically and internationally is stable, with Europe and the United States being the main markets, while some Asian countries are also rapidly developing their e-cigarette markets. Nearly 90% of e-cigarettes and their accessories are produced in China, with thousands of domestic e-cigarette and accessory companies.

Abroad, as the consumption market for e-cigarettes expands rapidly in countries like the US and Europe, international tobacco giants such as British American Tobacco, Imperial Brands, Lorillard Tobacco, Reynolds American, and Philip Morris USA have all entered the e-cigarette market, indicating a trend towards increased industry concentration.

After more than a decade of development, the e-cigarette industry, as a type of electronic consumer product, has gradually begun to exhibit characteristics of fast-moving consumer goods, especially with the rising trend of "health-conscious" consumerism. The consumer base for e-cigarettes has evolved not only from traditional smokers but also includes a significant portion of young people who are keen on following trends.

On Taobao, searching for "e-cigarettes" yields thousands of related products, categorized under "smoking cessation products." On JD.com, the prices for e-cigarettes range from dozens to thousands of yuan.
 
A Shenzhen-based manufacturer specializing in exporting e-cigarettes told reporters that domestic e-cigarette consumers primarily seek to quit smoking, while many foreign consumers view vaping as a fashionable and fun activity. This has led to significant differences between domestic and international markets, with Shenzhen's e-cigarette products mainly intended for export.

How long will the industry dividends last?

Since the signing of the international tobacco control treaty, governments worldwide have restricted the development of the tobacco industry, significantly slowing the growth of the global tobacco sector, with some years even experiencing negative growth. In this context, tobacco giants are attempting to develop new technologies and products to reverse the trend, leading to the emergence of reduced-harm new tobacco products, with e-cigarettes being one of the most significant.

As major cities in China successively implement smoking bans—prohibiting smoking in public places—the demand for alternatives has spurred the development of realistic small e-cigarettes. It is generally believed that the harm of e-cigarettes is less than that of traditional tobacco. Online, most businesses promote "smoking cessation" as a selling point for e-cigarettes, and many still view them as a means to quit smoking.

Industry insiders believe that the e-cigarette industry has favorable long-term development prospects. On one hand, e-cigarettes serve as a substitute for traditional cigarettes, offering similar smoke, taste, and sensation while significantly reducing harmful substances like tar, carbon monoxide, and nitrosamines, making them a good alternative to traditional cigarettes. On the other hand, while global cigarette production is slowly declining, the e-cigarette segment is experiencing high growth.
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A research report from a securities company analyzes that China currently has over 300 million smokers, and conservatively estimates that by 2020, if 10% of smokers are willing to accept e-cigarettes, the annual equivalent consumption of e-cigarettes could exceed 7 billion units, leading to a market size of over 100 billion yuan.

It is worth mentioning that with technological advancements, many domestic e-cigarette companies have begun to innovate in appearance, fashionable colors, safe temperatures, and pleasant tastes to stimulate new consumer demand. On Taobao's Tmall store, some e-cigarettes focus on design innovation, incorporating many fashionable elements. Some e-cigarettes are designed in various shapes, making them fun; while others are increasingly tech-oriented, with the latest e-cigarette products resembling smart terminals, operating with control boards and chips, and even having their own software.

However, it is important to note that the World Health Organization has never recognized e-cigarettes as a legitimate nicotine replacement product to help smokers quit. Additionally, developed countries like the UK, US, and France currently hold a conservative stance on the efficacy of e-cigarettes, and legislation and health investigations regarding e-cigarettes have yet to reach a conclusion.

In addition to policy uncertainties, taxation is also an issue for industry development. The traditional tobacco industry is the largest tax-generating industry, accounting for 6%-7% of national fiscal revenue, with a gross profit margin of up to 70%. Whether e-cigarettes can fill the gap in tax revenue and profits after large-scale substitution remains to be seen.
 
Industry insiders indicate that the biggest issue in the domestic e-cigarette market is the positioning of e-cigarettes. In China, e-cigarettes are neither classified as drugs, nor health products, medical devices, or tobacco monopoly products, leading to regulatory blind spots.

Despite the unclear positioning and regulatory policies, the market still holds high hopes for the domestic e-cigarette market. Industry consensus suggests that as channels deepen and broaden, and as companies expand in scale, the production capacity and output of the e-cigarette industry will further increase. Especially in recent years, tobacco giants and leading companies in related industries have continuously entered the market through mergers and acquisitions, indicating a trend towards increased industry concentration.

In Shenzhen, leveraging advantages in the electronics and foreign trade supply chain, about 90% of the world's e-cigarettes are produced here. As a global e-cigarette industry hub, the first domestic e-cigarette industry association was officially established two years ago, subsequently releasing two group standards: "General Specifications for E-Cigarette Vaporization Devices" and "Specifications for E-Cigarette Liquids." These standards are seen as filling the gap in e-cigarette industry standards and facilitating the standardized development of domestic e-cigarettes. According to the official website of the National Standardization Administration, the national standards for e-cigarettes are currently under review, and based on a standard formulation cycle of 24 months, they will be approved by the National Standards Committee within 12 months, at which point the production and circulation of e-cigarettes in China will comply with national standards.

Among them, the national standard plan for "E-Cigarettes" and "Determination of Nicotine, Propylene Glycol, and Glycerin in E-Liquids by Gas Chromatography" is reported and executed by TC144 (National Tobacco Standardization Technical Committee), with the National Tobacco Monopoly Administration as the competent authority. It is noteworthy that the "E-Cigarette" standard is a mandatory national standard plan, meaning it will be implemented through legal and administrative regulations within a certain scope, possessing legal attributes, which means companies must strictly comply.

Once these standards are implemented, how long can e-cigarettes remain popular? How long will the industry dividends last? This is a topic of great interest to many e-cigarette companies today!