On The E-Cigarette and Vaping Chinese Supply Chain

E-cig giants, such as Juul, are invested heavily over the past year. Why is the e-cig industry such a heated topic? How is the industry doing now? What opportunities could it entail for you to chime in as well?

In this report, we will mainly focus on the cost structure, product structure and industry chain of electronic cigarette, so that you will have a deeper understanding of this industry and position your business activities better.

1. The cost structure of e-cigarette

In terms of the structure, the electronic cigarette is mainly composed of smoking articles, atomized liquid (smoke oil), display screen, chip, circuit board and other accessories.

Among them, the cost of batteries and atomizers accounted for the largest proportion, reaching 55% and 35% respectively.

The Electronic Cigarette Cost Structure

2. The product structure of e-cigarette

At present, the most popular types of electronic cigarettes on the market are as follows.

2.1 Cigalikes structure

The first e-cigarettes tend to look like tobacco cigarettes and so are called “cigalikes”. Most cigalikes look like cigarettes but there is some variation in size.

Electronic cigarette. Image Source.

2.2 E-liquid structure

E-liquid is the mixture used in vapor products such as e-cigarettes and generally consists of propylene glycol, glycerin, water, nicotine, and flavorings.

While the ingredients vary the liquid typically contains 95% propylene glycol and glycerin.

E-liquid Type. Image Source.

3. The industry chain of e-cigarette

The upstream market of the electronic cigarette industry chain mainly involves batteries, smoke oil, heating components, control circuits and other industries, while the downstream demand market is dominated by smokers who have demand for smoking cessation.

E-cigarette Industry Chain

At present, most of the domestic e-cigarette manufacturers adopt the business model of OEM and ODM.

As the market matures, the current dispersed e-cigarette production industry will be integrated.

In the future, enterprises with channel advantages are expected to rely on stable order resources to lead the industry integration, complete the layout of the entire e-cigarette industry chain, and shift from B2B to B2C.

Meanwhile, they will also strengthen the control over the upstream and downstream, and at the same time obtain more industrial chain profits.

Next, we are going to introduce upstream and midstream of the industry chain one by one.

3.1 Upstream of the industry chain

The upstream industry chain of the electronic cigarette industry mainly includes chip design solutions, battery, cotton, silk and other accessories manufacturers.

In this part, we mainly introduce the types of major players involved in the upstream of the industry chain and the major participating companies. At the same time, we offer you an analyze of the advantages of these companies.

3.1.1 Chip design manufacturer

Chip is the core control component in the electronic mainframe box, which realizes the functions of power adjustment, mode switching, temperature control and power management of the electronic cigarette.

The quality of the chip directly affects the stability and durability of the experience of the electronic cigarette product and even affects the taste of atomizer.

The major companies involved in chip design and their advantages are as follows.

Major Chip Design Companies

3.1.2 Smoke oil manufacturer

The tobacco oil industry is essentially a fine chemical industry. All kinds of products need to be tested, developed, tested, and tested in large-scale production.

According to the needs of downstream customers, the changes and feedback are updated or improved, and the quality of products is stable.

The combination of various raw materials and production processes is the core competitiveness of the tobacco industry.

At present, Chinese tobacco oil companies mainly focus on the OEM/ODM model and carry out OEM production for well-known foreign brands. The domestic private label market has a small proportion. Most of the smoke oils that consumers prefer in the market are foreign brands.

Major manufacturers ranking is listed in the following table.

Ranking of Smoke Oil Manufacturers

Apart from the companies in the table, there are also 5 great enterprises as follows.

A. Hangsen Holding CO,. LTD

Hangsen Holding CO,. LTD is currently the world’s largest exporter of e-cigarette oil production and the world’s first high-tech group to realize the development, production, sales and service of e-cigarette series products.

It has more than 1,000 different types of smoke oils in five categories. Its supply and marketing channels are spread over 80 countries and regions around the world. In many countries, the market share of Hangsen smoke oil exceeds 80%.

B. Nico pure 

Founded in 2009, Nico pure is headquartered in Tampa, a leading manufacturer of e-cigarettes and evaporators with operations in the US and Europe.

It owns well-known brands such as Halo, evo, Triton and G6, among which Halo is one of the few smoke oil brands known to be used in soaking processes among all overseas brands.

C. Fanhuo Technology

Since its establishment in 2009, Fanhuo Technology has been known to focus on research and development of electronic cigarette oil. Smoke oil from this company mainly uses artificial synthetic nicotine.

It is the world’s largest smoke oil foundry, providing high-quality smoke oil products to many well-known smoke oil brands around the world, providing customers with OEM design sources. Now, a lot of factories are set in the United States.

D. Bode International

It is one of the leading manufacturers of e-cigarette and smoke liquid technology. There are more than 7,000 retail stores in the United States.

Their products are extracted from pure plants. After several times of careful blending, the impurities and flavors are filtered and retained in natural plants.

E. Bolton Group

It is an international group company with diversified developments in tobacco, edible and daily-use flavors, pharmaceuticals, bioengineering and consumer electronics.

Bolton has more than 30 affiliated companies and successfully listed on the Hong Kong Main Board in 2005. It is the first listed company in Chinese flavor and fragrance industry.

3.1.3 Battery manufacturer

The batteries used in e-cigarettes are mainly 18650 batteries, and the gross profit margin of the entire battery industry is less than 30%.

Companies that have a place in the battery industry are shown below.

Major Battery Manufacturers

3.1.4 Accessory manufacturer

There are also oil guide cotton, heating wire, etc. in the electronic cigarette DIY assembly. These parts are generally not specifically manufactured for electronic cigarettes.

Some famous manufacturers in this part of the industry are ADVKEN, flashwicks, Mad Rabbit, Vaporwire, VGOD, CKS, Cotton Candy and VCC.

Among them, Mad Rabbit always provide high quality wire and other accessories at discounted prices; VGOD try to use the best materials with innovative internal hardware and skillfully construct devices without cutting corners.

3.15 Hardware and plastics manufacturer

Plastics, hardware are the raw materials for the production of electronic cigarette products. This kind of industry has strong commodity attributes.

That’s the basic condition of the E-cigarette’s upstream of industry chain. Then, we will focus the situation in the midstream.

3.2 Midstream of the industry chain

There are two types of major players involved in the midstream of the e-cigarette industry chain: E-cigarette manufacturers and traditional tobacco companies.

In this section, we mainly introduce you several Chinese e-cigarette manufacturers and some international tobacco giants.

Chinese E-cigarette Manufacturers
Traditional Tobacco Companies

4. Supply chain situation of the e-cigarette industry

As an emerging product, e-cigarettes have a good market prospect. Not only do electronics manufacturers continue to upgrade their products for the market consumer groups; but also in terms of industry layout, many manufacturers have expanded their e-cigarette business through independent investment or acquisition in recent years.

Next, we will focus on analyzing the distribution of China’s e-cigarette companies as well as supply and demand situation of the e-cigarette industry.

4.1 Distribution of China’s e-cigarette companies

There are nearly 4,000 E-cigarette companies in China, among which more than 500 enterprises located in Shenzhen, accounting for 13% of the total number of enterprises in the country. But about 80% of them are enterprises with less than 50 people.

Important associations and chambers of commerce in China’s electronic cigarette industry are generally located in Shenzhen. In August 2017, Shenzhen Electronic Cigarette Chamber of Commerce was formally established in Shenzhen.

Distribution of China’s Electronic Cigarette Companies in 2017

4.2 E-cigarette industry supply and demand situation

The electronic cigarette industry presents a situation where demand centers are in Europe and America but manufacturing centers are in China. From the perspective of production, China produces about 95% of the world’s electronic cigarettes, 90% of which are for export, and domestic sales are about 5%.

In terms of consumption, in 2017, North America’s electronic sales amounted to approximately US$5 billion, accounting for 36% of the global total; Western Europe’s e-cigarette consumption accounted for 30% of the global total, ranking second in the world; China’s regional share is small, approximately 5%.

The penetration rate of electronic cigarettes in China is still far lower than that in Europe and the United States, and the demand center of the electronic cigarette industry is mainly in Europe and America.

Global E-cigarette Production Ratio in 2017
Global E-cigarette Sales Ratio in 2017

That’s all about cost structure, product structure and industry chain of electronic cigarette. Among all parts of the industry chain, the key point lies in choosing the best manufacturers.

We, Insight Solutions Global, are always willing to help you out. Reach out to us and see how we can help you choose you the best partner supplier and offer you a comprehensive supplier evaluation to reduce risk for your supply chain, and drive your supply chain performance up to the next level.

Above all, that’s the issues you can concern about your next movement. We hope it’d be helpful. Please feel free to leave your comments below, if you have any questions.


Note: The data in the post are from Qianzhan, a Chinese research institute.

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