How to choose an electronic cigarette processing factory?

How to choose an electronic cigarette processing factory?

As the city wall of the ceramic core is gradually broken by BYD, how long can Smol’s “Iron Throne” in electronic cigarettes last?

 


The moat of the e-cigarette leader Smol is being quickly broken through by the “iron hoof” of the BYD Corps.

Recently, BYD Electronics officially launched the brand logo “BEEM CORE” for ceramic atomizing core (ceramic core) technology. Behind this seemingly inconspicuous technology release, the field of electronic cigarette OEM is ushering in an industry turning point.

The ceramic core is the core component of the electronic cigarette. The ceramic core can heat the e-liquid into the “smoke” that the user inhales, which determines the smoking experience of the electronic cigarette.

In the past few years, Smol, who has the first-mover advantage of ceramic core technology, has become the biggest beneficiary, and it is also its killer in the electronic cigarette market.

Among the manufacturers of ceramic cores, Smol International ranks as the leading electronic cigarette OEM with a market share of 18.9%, while the market share of the second to fifth places is only 14%.

However, with the arrival of cross-border rival BYD and the gradual cracking of ceramic core technology, Smol’s halo of kings seems to be breaking.

Negative market sentiment is hanging over the company. In the capital market, the share price of Smol has been falling since January, and its market value has been cut in half. However, since November, BYD Electronics’ share price has soared by 50% from HK$22 to a maximum of HK$33.

On one side is BYD, which has stronger experience, strength and technology in consumer electronics, and on the other side is Smol, who has “one trick” in ceramic core technology.

As the most critical ceramic core “city wall” is gradually broken by BYD, how long can Smol’s iron throne in electronic cigarettes last?

Why is the technical barrier of ceramic core not high?
“Ceramic cores have a higher degree of automation and can be mass-produced. (BYD’s entry) will have a very significant impact on the industry, and it is expected to break the existing pattern.” Ma Weimin, founder of e-cigarette vertical media grid consumption, commented on Jiemian News, BYD Electronics is currently the most challenging competitor to Smol International, and its introduction of ceramic cores is in line with industry logic.

The e-liquid and atomizing core group are the core of the electronic cigarette. Because the prepared e-liquid is relatively simple, the atomizing core becomes the “heart” of the electronic cigarette. It atomizes the e-liquid by heating, and the generated vapor is mixed with air to become an aerosol, which is the “smoke” inhaled by the user.

Cotton fibers and ceramics are the two mainstream heating materials for atomizing cores. Cotton wick is a commonly used material in early electronic cigarettes. It is characterized by good oil conductivity (conducive to smoking experience) and low cost of cotton, but its manufacturing stability and product consistency are poor.

BYD Electronics has already launched cotton core products. For example, this year, an “oil core separation” product produced by the electronic cigarette brand Lanpei. half.

After the cotton core, ceramic materials with better comprehensive performance appeared, which balanced product performance and cost, and enabled more stable automation and mass production.

During the outbreak of electronic cigarettes, the supply of products was in short supply, and Smol International, which took the lead in developing ceramic cores with excellent performance, seized most of the market. Its ceramic core can achieve a production capacity of 7,200 pieces per hour, but the automated cotton core production line can only achieve 1,800 pieces.

“The ceramic core does not have too high technical content. It has a certain ‘Know-How’, but it can be compensated with manpower and time.” A head of an electronic cigarette company in charge told Jiemian News.

As the ceramic core of the “heart” of the electronic cigarette, its “Konw-How” mainly lies in the pore size of the fired ceramic. Only ceramics with fine pores and high strength can produce a good smoking sensation. According to the above-mentioned sources, these technical capabilities will soon be able to make up for BYD Electronics, which has a lot of money and investment.

BYD Electronics applied for the invention patent of “A Porous Ceramic and Its Preparation Method and Application” in October 2019, and launched its self-developed ceramic core brand this year.

“It is not too difficult to make a ceramic core itself, the key depends on the level of atomization and reduction of the formula itself and the pleasantness of the experience. BYD (the ceramic core made) is currently aimed at improving assembly efficiency and assembly operations. Consistency and stability.” Another head of a small e-cigarette brand told Jiemian News.

The above-mentioned person in charge believes that, without market testing, it is still impossible to determine the technological advancement of its ceramic core. But what is certain is that BYD Electronics’ brand endorsement and manufacturing capabilities can make waves in the market.

“From the perspective of future trends, the higher the degree of automation in e-cigarette production, the better. BYD Electronics wants to make a subversive innovation, and it will bring the degree of automation to an infinitely close to 100%.” ​​Ma Weimin said.

BYD’s ambition
“Although BYD’s ceramic core technology started relatively late, judging from the current test situation, it has been better than most of the ceramic atomizing cores on the market,” a person in charge of an electronic cigarette company told Jiemian News.

BYD Electronics currently has five business segments: assembly, components, smart products, automotive intelligent systems, and medical (masks), which will account for 43%/24%/13%/2%/18% of total revenue in 2020, respectively. The proportion of low-value-added assembly business has decreased in recent years, and the company is looking for room for growth in higher-margin automobiles and smart products.

E-cigarettes are seen as the most important growth engine. Despite the policy uncertainty, it is still good business. The gross profit margin of Smol International’s enterprise-oriented products can reach more than 40%, while the gross profit margin of BYD Electronics’ traditional assembly business is only about 4%. The profit gap of 10 times is attractive enough.

According to public information, BYD Electronics’ layout of electronic cigarettes has begun in 2018.

In 2019, BYD Electronics completed market analysis and product design, and most of the products were formed, but when the products were about to land, they caught up with the epidemic in early 2020, and the company’s focus shifted to mask machines.

After the production capacity of masks was saturated, BYD Electronics continued to make efforts to e-cigarettes, and the CEO personally led the team. In the second quarter of 2020, the company completed the proofing of atomizing cigarettes, ceramic cores, and pods. With the successful development of ceramic atomizing cores and pod systems, the company began to lay out patents.

According to a survey report in May this year, BYD Electronics stated that the company’s electronic cigarette products have “unique places in technology, including the holes in ceramics”. Require. “Some technologies have applied for patents, and some Know-Hows are confidential and have not applied for patents.” The management of BYD Electronics said.

The structure of electronic cigarettes is simpler than that of most electronic products. In addition to technology, the mass production capacity and stability of manufacturers are all factors that brand customers value. BYD Electronics once stated that the company has invested nearly 600 engineers to participate in research and development, and invested 40 production lines in production capacity. A single production line can produce 1 pod per second, and the daily shipment can reach 4 million under full load.

By 2021, BYD Electronics has cooperated with some domestic brands to launch “cotton core” electronic cigarettes. The launch of self-developed ceramic cores means that BYD Electronics can win more customers and achieve mass production.

“Our R&D team visited many foundry factories and finally decided to choose BYD. The main reason is that BYD Electronics, as a traditional foundry giant, has a greater advantage in processing and manufacturing”, the relevant person in charge of ICE Blizzard explained the reason for cooperation with BYD.

BYD Electronics said at the third quarterly report performance exchange meeting that the company’s new ceramic core products have been applied to overseas major customers’ products. If the progress is smooth, overseas major customers will contribute considerable income next year.

How long will Small’s good days last?
Shenzhen is known as the “Global Fog Valley”, where more than 95% of the world’s electronic cigarettes and accessories are produced and exported.

Smol International is a leader among thousands of electronic cigarette workshops in Shenzhen.

In 2007, Shenzhen Simore Company began to get involved in electronic atomization equipment, and was one of the first companies to enter the electronic cigarette industry. Its development has roughly gone through three stages: 2007-2014, the creation and development period, during which it began to export to the United States in 2012; 2015-2017, the period of rapid export business growth, during which the first generation of ceramic heating technology was introduced into the market; 2018 So far, the leading technology has further consolidated its leading position, and it was listed on the Hong Kong Stock Exchange in July 2020.

It is the ceramic core that keeps the company going all the way. In 2016, Smol International developed the first-generation “FEELM” ceramic core technology and built its own patent moat, thus binding a group of high-quality major customers. The company’s revenue has also increased from 710 million yuan in 2016 to 10.01 billion yuan in 2020, an annualized increase of 70%, and the market value once exceeded 400 billion yuan.

However, as the world’s largest e-cigarette manufacturer, Smol’s position as the international leader seems to be stable, but this year’s life is not very easy.

Its stock price has been falling since January, and its market value has halved. Among them, in addition to the market sentiment fluctuations affected by the policy wind, the more important reason is that the market competition is becoming more and more fierce, and giants are challenging to enter the market. The latecomers are not far behind in terms of capital reserves and technological R&D strength.

Luxshare also set foot in e-cigarette OEM in August this year, and established a subsidiary, Leading Electronics, whose business scope includes e-cigarettes, wearable smart devices, integrated circuit chips, etc., and has a patent layout related to e-cigarettes.

Soochow Securities analyzed in the research report that, on the whole, BYD Electronics has the strength to compete with Smol. Since the electronic cigarette industry is still in the early stage of development, the pattern is uncertain, and the competition is fierce. The competition is based on manufacturers’ understanding of core technologies. Electronics is expected to gain a certain share by virtue of its accumulation in ceramics and other fields and become an important player in the industry.

However, in the short term, Smol International can indeed maintain its advantage by virtue of the first mover in the patent layout.

According to the website of the State Intellectual Property Office, the interface news search shows that Shenzhen Microwell Technology Co., Ltd., the main body of Smol International, currently has a total of 547 valid patents related to electronic cigarettes, including 191 invention patents and 154 utility model patents.

And BYD (including Shenzhen, Huizhou and other subsidiaries) has 18 valid patents related to e-cigarettes, including 3 invention patents and 15 utility model patents, the latter has a lower gold content than invention patents. However, BYD Electronics has revealed in the survey that the company has nearly 100 patents pending.

The huge disparity in the number of patents also means that BYD Electronics may face the risk of infringement. Smol International has stated that ceramic cores on the market may have a certain risk of infringement. The company launched a “337 investigation” overseas in October this year, accusing the company of infringement of 3 patents and 1 trademark of the company’s ceramic cores. However, no lawsuit has been filed in the country.

In addition to technical barriers, the deep bond between Smol International and the top e-cigarette brand also makes it difficult for BYD to break through. VUSE (a brand of British American Tobacco) and RELX are the top brands at home and abroad, and they are also major customers of Smol. In a short period of time, this market pattern will not change.

But in the long run, the domestic e-cigarette industry is still in the early stage of development. The overseas European market is relatively open to e-cigarettes, and there is still room for expansion. The market is far from a foregone conclusion. The functions and technical routes of electronic cigarette products also have a lot to be explored.

There are various signs that, in front of the huge cake of electronic cigarettes, BYD Electronics is in full swing.

Jiemian News found in an interview and survey that most e-cigarette brands, due to supply chain cooperation, expressed relatively obscure expressions of BYD’s upcoming impact on Smol.

The case of latecomers catching up has been staged many times in the business history. In the face of BYD Electronics, a strong opponent, Smol International obviously cannot sit back and relax.

Wang Jinbin, CEO of the e-cigarette brand Weizhen, believes that although BYD Electronics has been in the e-cigarette business for a while, but with its strong manufacturing capacity and perfect supply chain supporting system, it is believed that it will catch up later, and the impact on Smol is self-evident.

“When BYD has enough user data, the trend of ceramic atomizing cores competing for each other will definitely appear. At that time, whether it is a new brand or a traditional brand of e-cigarette customers, while facing the optionality, there will definitely be There are many considerations.” Wang Jinbin said.

Source: Interface News

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