Byd Enters E-Cigarette Industry with License Approval

Following his ventures into car and mask sales, Wang Chuanfu has officially entered the electronic cigarette industry.

BYD Electronic recently announced that its wholly-owned subsidiary, BYD Precision Manufacturing Co., Ltd. (referred to as "BYD Precision Manufacturing"), has been awarded the "Tobacco Monopoly Production Enterprise License (Electronic Cigarette OEM Enterprise)" by the National Tobacco Monopoly Bureau.

A reporter from the Shanghai Securities News has noted that in addition to BYD Electronic, there are several other companies that have recently obtained approvals to list on capital markets, including Smore International (listed in Hong Kong), VeriSilicon Holdings (listed in the US), as well as Jinko-Solar Holding, Zhenhua Port Machinery Company, and Kingmed Diagnostics (all listed in mainland China).

BYD Electronics joins the game.

Intensification of Industrial Chain Competition

BYD Electronics, a subsidiary of BYD Company, was previously spun off and listed on the Hong Kong Stock Exchange. It is controlled by Wang Chuanfu and its main business involves contract manufacturing of intelligent phones, masks, and electronic cigarettes. In 2018, BYD Electronics entered the electronic cigarette industry and in 2021, it launched its own brand of ceramic atomization core technology called "BEEM CORE".

According to BYD Electronics, obtaining the license was due to their strong research and manufacturing capabilities. They completed the application process according to regulations and quickly passed the evaluation of the relevant national authorities. According to data from research firm Hwisys, BYD Precision Manufacturing has recently focused on technologies such as e-cigarettes, vaporizers, atomizers, makeup devices, and porous bodies. They have applied for 357 patents, with invention patents accounting for 7.28% of the total.

Overview of BYD Precision Manufacturing's Technological Field

Currently, BYD Electronic has completed the patent layout for its entire line of electronic atomization products, as well as investing in automated production lines, integrating its own capabilities in new material research and development, precision mold-making, product design and development, and intelligent manufacturing.

However, BYD Electronic's ambitions in the e-cigarette industry, as well as its mature experience in electronic component production, are seen as a threat to the market position of Smoore International by outsiders.

We welcome the flourishing development of the entire electronic cigarette ecosystem," said a senior executive of Smoore International in response to a reporter from the Shanghai Securities News during a recent performance briefing. The electronic cigarette industry is still in its very early stages and more companies joining the industry can promote healthy development and increase the size of the market pie.

According to public data, in 2021, Smoore International's global market share increased to 22.8%, surpassing the total of the second to fifth places, maintaining its position as the world's largest electronic atomization equipment manufacturer. Industry insiders estimate that as a new player in the industry, BYD Electronics' approved production capacity will not be too high based on historical operating data.

Electronic cigarette giants have successively received licenses.

Unlike newer players in the market such as BYD Electronics, established electronic cigarette giants such as Smoore International and Relx Technology have been waiting patiently for their licensing approval.

On August 3rd, Semiconductor Manufacturing International Corporation (SMIC) announced that its wholly-owned subsidiaries, Shenzhen McWell Technology Co., Ltd. and Shenzhen McBrother Technology Co., Ltd., have received a tobacco monopoly production enterprise license from the National Tobacco Monopoly Bureau. The license is valid from July 25, 2022 to July 31, 2023.

In addition to another subsidiary obtaining relevant licenses in July, Smoore International now has three subsidiaries that have obtained certification. On August 4th, Guosheng Securities released a research report analyzing the future implementation of production quotas in the electronic cigarette industry. The allocation will mainly be based on factors such as the average actual sales volume over three years and the utilization rate of industry equipment capacity. Therefore, leading companies with existing scale advantages are expected to significantly lead in approval quotas and clarify the production pattern.

In a recent development, electronic cigarette brand YOOZ has obtained a license to produce tobacco products, expanding its operations to cover the downstream of the supply chain. On July 22, YOOZ's holding company, Fogcore Technology, announced that it had been awarded a "Tobacco Monopoly Production Enterprise License (Electronic Cigarette Product Production Enterprise)" by the National Tobacco Monopoly Bureau. The permitted scope of the license includes brand ownership and product manufacturing for both domestic and export markets, with the product brand name being RELX YOOZ.

Fogtech has been granted the production capacity to manufacture 15.05 million cigarette rods, 328.7 million pods, and 6.1 million disposable electronic cigarettes annually, with an effective period from July 18, 2022, to July 31, 2023. Fogtech stated that the awarding of the license is a significant event for the company in its efforts to implement the Electronic Cigarette Management Regulations and embrace industry-standard development in the new era.

Yooz is currently the leading downstream brand in China's electronic cigarette industry. The brand is owned by Fogcore Technology, a company listed on the US stock market. Earlier, there were concerns in the market that the increasing regulatory scrutiny would affect the brand's growth, leading to a significant drop in its stock price.

The stock price trend for Fogcore Technology from February 2021 to present.

Fogtech has stated that the company is fully capable of achieving compliance as planned in its operations, and will strive to comply with all applicable regulatory requirements, including but not limited to obtaining necessary regulatory approvals, developing new products that meet national standards, and conducting transactions on the national unified electronic cigarette trading platform when trading national standard new products.

According to industry professionals, companies like SMIC International and Wuxin Technology have a competitive edge in their research and development capabilities. Since its establishment, Wuxin Technology has invested 800 million yuan in R&D and built an eight-laboratory matrix. Wisdom Sprout Data shows that Wuxin Technology has applied for 559 patents, of which 50.09% are invention patents. Some of the patents with high market value include "vaporization devices and methods.

Three companies in the A-share market have recently obtained licenses.

Turning our focus to the A-share market, as of August 5th, three companies have been granted licenses.

On August 5th, Jingjia Co., Ltd. announced that its subsidiary, Shenzhen Yunpuxinghe Technology Service Co., Ltd. (referred to as "Yunpuxinghe"), recently received a tobacco monopoly production enterprise license (e-cigarette processing enterprise) issued by the State Tobacco Monopoly Bureau.

Yunpu Star River, as an important platform for the new tobacco industry chain of Jingjia Group, provides electronic cigarette brand customers with one-stop production, processing, assembly, and supply chain services, and continuously explores and extends in the field of new tobacco industry chain to meet the actual needs of customers.

On July 16th, Jingjia Corporation announced that their subsidiary, Yunnan Yunshuo Technology Co., Ltd. (referred to as "Yunshuo Technology"), has recently received a tobacco monopoly production enterprise license (aerosol production enterprise) issued by the State Tobacco Monopoly Bureau.

Jinjia Corporation reports that Yunsuo Technology, as one of the first companies to receive a tobacco monopoly production enterprise license (for producing vaporized substances) in Yunnan Province, will expand its research, development, production, and sales of electronic cigarette e-liquids and other related products within the parameters set by relevant laws and regulations.

On July 15, Jilong Electrical and Mechanical announced that its wholly-owned subsidiary, Xingke Electronics (Dongguan) Co., Ltd. (referred to as "Xingke Electronics"), has recently received a tobacco monopoly production enterprise license (electronic cigarette processing enterprise) issued by the National Tobacco Monopoly Bureau, which will have a positive impact on the company's electronic cigarette related business operations.

On June 22, Jincheng Pharmaceutical announced that its wholly-owned subsidiary, Shandong Jincheng Pharmaceutical and Chemical Co., Ltd., had received a Production Enterprise License for Tobacco Monopoly (nicotine production for electronic cigarettes) from the State Tobacco Monopoly Bureau. This means that they can now legally produce and sell nicotine for electronic cigarettes. This is the first batch of production licenses for nicotine used in electronic cigarettes issued in China.

Several e-cigarette brands, including Fogcore Technology, are currently intensifying their efforts to develop products that comply with national e-cigarette standards. According to data released on the website of the State Tobacco Monopoly Administration, as of August 1st, 131 e-cigarette related companies have been granted tobacco monopoly production licenses.

On March 11th, the State Tobacco Monopoly Administration released the "Regulations on the Management of Electronic Cigarettes", which stated that anyone engaged in the production, wholesale, or retail of electronic cigarettes within China must obtain relevant tobacco monopoly licenses. A transition period will be in effect from May 1st to September 30th of this year.

With ongoing regulatory reviews, it is expected that more companies will obtain tobacco monopoly licenses from August to September of this year. By October of this year, the transitional period for the "Electronic Cigarette Management Measures" will officially end, marking a new starting point for the domestic electronic cigarette industry.

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