How Much Has the Pandemic Affected the Domestic and Global E-Cigarette Industry?

According to data from the China Electronic Chamber of Commerce's Electronic Cigarette Industry Committee, the pandemic has presented varying degrees of opportunities and challenges for the domestic and global electronic cigarette industry:

China: China is the world's production base for electronic cigarettes, accounting for 95% of the global market share in smoking devices. The United States and the United Kingdom are the largest and second-largest consumers globally, respectively, and are the most important markets for Chinese electronic cigarettes. Domestic electronic cigarette companies have gradually resumed work by the end of February, achieving full staffing by March. During the pandemic, overseas order demand was strong, with estimated exports from January to April reaching 10 billion RMB, maintaining the same level as in 2019, and experiencing rapid growth in April. Additionally, many domestic electronic cigarette companies are increasing their investment, including in product research and development and equipment, to enhance their capabilities during this "special period." We believe this indicates optimism among industry practitioners regarding future development.

United States: The United States is the largest consumer market for electronic cigarettes, accounting for over 50% of the global market share, and is a bellwether for the global electronic cigarette industry. According to data from the Vapor Technology Association (VTA), the impact of the pandemic began in mid-March. First, imports slowed, preventing distributors from transporting products. In the 43 states under the "stay at home" order, only 10 states had electronic cigarette retail stores still operating, and 3 states only allowed curbside delivery. However, these stores also faced difficulties in sourcing their own products. E-liquid manufacturers in the U.S. even converted their production lines to produce hand sanitizer to support pandemic efforts. By June, nearly all states had resumed operations, with only a few areas remaining closed. Notably, at the request of the VTA, the FDA extended the PMTA deadline for electronic cigarette companies from May 12, 2020, to September 9, 2020, giving time to global companies looking to enter the U.S. market. Currently, leading Chinese electronic cigarette companies, such as Myle (whose parent company Smoore has been listed on the Hong Kong stock exchange) and RELX, are preparing for the PMTA.

United Kingdom: The UK is the most supportive country for electronic cigarettes globally and is the second-largest destination for Chinese electronic cigarette exports. According to data from the UK Vaping Industry Association (UKVIA), there are currently over 3,000 electronic cigarette shops in the UK, a 10% increase from last year. Electronic cigarette retail stores suspended in-store services on March 24 and reopened in mid-June. Overall sales decreased by 30%-60%, with sales of open-system electronic cigarette products dropping by 60%. However, many stores shifted to online sales and delivery services, resulting in a 1500% increase in online sales. Additionally, government subsidies have led to increased profits despite decreased revenues. UKVIA believes that the supply chain in the UK was primarily affected by insufficient supplies from China during the pandemic, highlighting the need to establish a stable and secure supply chain with China.

Europe: According to data from the European Electronic Cigarette Association (IEVA), due to the pandemic, physical electronic cigarette stores in Germany and most EU countries were required to close from March until mid-May. During the pandemic, electronic cigarette sales were affected, leading wholesalers and factories to face inventory backlogs and cash flow pressures; electronic cigarette trade shows were also canceled during this period. Additionally, strict health standards and rising shipping costs have led to an overall increase in product costs by about 10%-20%, which wholesalers primarily bear, keeping wholesale and retail prices stable. IEVA predicts that the European electronic cigarette market will grow by 8.0% in 2020. Currently, open-system electronic cigarette products remain popular among European consumers, and the association believes that a robust consumer base (including those transitioning from other products and experienced users) will be the main potential for the future European market.

Recent recommendations for new tobacco products: International supply chain: Smoore (the world's largest vaporizer manufacturer); EVE Energy (stakeholder in Smoore); Yinchuan Technology (IQOS precision parts secondary supplier). Domestic supply chain: Jinjia Co., Ltd. (partnering with Yunnan Tobacco and Xiaomi's ecological chain to position itself in the new tobacco main channel), Jiyou Co., Ltd. (laying out new tobacco research and industrialization), Dongfeng Co., Ltd. (investing in new tobacco products), Shunhao Co., Ltd. (dual approach in cartridge and device layout), Huabao Co., Ltd. and Huabao International (leading in flavoring and new tobacco raw material layout), China Borton (acquiring international electronic cigarette manufacturer Jirei).

Risk warning: Changes in new tobacco policies/technology development risks, sales/business development not meeting expectations.