Editor’s Note
- Due to the sensitivity of certain interviewees’ positions, some identities have been anonymized to protect sources.
- In addition, company-related information that could not be independently verified has been generalized to avoid misinterpretation.
- Transaction volumes, pricing figures, and other data cited in this article have not been independently verified and are provided for reference only.
- This article aims to present overall industry trends and structural changes, rather than evaluate individual companies.
Key Points
- The U.S. vaping market has undergone major turbulence. Since mid-2024, intensified U.S. enforcement has triggered a “shortage–substitution–restructuring” cycle, as top brands’ disruptions created a supply vacuum.
- The shortage phase fueled high-leverage risk. Distributors adopted a “10% deposit + post-clearance payment” model, amplifying demand and shifting financial pressure to Chinese manufacturers—tightening cash flow and inflating inventories.
- Resupply led to structural consolidation. Once top brands resumed shipments, distribution rapidly reconcentrated, forcing mid-tier and substitute brands out of the market and ushering in a phase of credit elimination.
- Compliance and innovation are now the key dividing lines. Many firms remain cautious about entering the costly PMTA process, while emerging “non-nicotine” compounds such as Nixodine and 6-methyl nicotine occupy a regulatory gray zone.
2Firsts | November 12, 2025 —Autumn has arrived in Shenzhen. The air has cooled, the humidity has faded, and the city—home to the world’s densest cluster of vape exporters—feels unusually calm.
In a quiet office, a veteran familiar with the U.S. market told 2Firsts:
“Shortages make people excited. Supply returning makes them sober.”
His remark captured the essence of a global market undergoing reshuffling.
The United States remains the world’s largest vaping market—both the ultimate arena of commercial competition and the bellwether of regulatory and compliance shifts.
Meanwhile, China, which supplies roughly 90% of the world’s vape products, stands at the center of the manufacturing ecosystem.
Any fluctuation between the two reverberates throughout the global supply chain.
Over the past few months, 2Firsts journalists spoke with more than ten professionals across China and the United States—factory owners, distributors, e-liquid and coil suppliers, logistics managers, and warehouse operators.
Their consensus was clear:
The volatility of the U.S. vaping market has not only reshaped trade structures but also altered the mindset of Shenzhen’s manufacturing sector.
I. Shortage: A Regulatory Vacuum Opens a Market Rift
In mid-2024, the U.S. Food and Drug Administration (FDA), working with Customs and several state agencies, intensified seizures of unauthorized vape products.
The first to be affected was Brand A—a long-dominant player with one of the largest U.S. market shares.
By May 2025, its shipments were repeatedly detained at ports and warehouses. As inventories ran out, American retailers faced widespread “out-of-stock” conditions.
“Shelves were empty. Customers kept asking, and we had nothing left,” recalled one U.S. distributor.
When this “vacuum” signal reached Shenzhen, emotions ignited instantly.
The six major U.S. distribution groups, traditionally aligned with top brands, began issuing urgent sourcing requests to Chinese factories—many of which had never worked with them before.
“Everyone thought they’d been chosen—like they’d finally gotten their ticket into the U.S. market,” said one manufacturer.
The excitement quickly spread through the supply chain, triggering what would soon be known as the “substitution wave.”
II. Substitution: Inflated Demand and the High-Leverage Trap
To secure scarce supplies, U.S. distributors widely adopted a “10% deposit + balance upon customs clearance” payment model.
While this structure appeared to balance risk on paper, it effectively shifted all financial pressure to the supply side.
For Chinese manufacturers, every order meant heavy upfront costs and long payment cycles—while distributors bore almost no risk.
“They placed orders with dozens of factories at the same time,” explained S., an industry insider. “Whoever ships first becomes the supplier.”
In this race, demand became artificially magnified. Each factory believed it had landed a major contract, though the actual market size had not grown.
The result was a fragile financial chain driven by high leverage—one that could collapse the moment replenishment began.
According to several interviewees, some Shenzhen factories tripled their shipment volumes within two months, but payment terms extended to 90 days or longer.
“It looked like a boom, but our cash flow was being hollowed out,” said one OEM factory owner.
Upstream suppliers, however, enjoyed a brief surge.
Industry observers agreed that E-liquid Manufacturer W—one of the largest in China—and Atomizer Producer C, a leading coil manufacturer, were the biggest beneficiaries of this “substitution dividend.”
“Assemblers made little profit, but e-liquid and coil makers were doing real cash business,” one industry participant commented.
III. The Mirage Expands: From Warehouses to Ports
The substitution frenzy soon extended from Shenzhen to U.S. ports.
Distributors’ payment terms were typically divided into three stages: a 10% deposit upon order, partial payment after warehouse entry and initial sales performance, and final settlement once the products were sold through.
“It’s a classic sell-through payment model,” S. said. “The faster it sells, the faster you get paid.”
This flexible structure caused warehouse inventories to swell rapidly.
Distribution centers across multiple U.S. states became packed with containers awaiting customs clearance.
Some exporters even began covering local storage costs themselves, simply to maintain the appearance of an active business relationship.
“Everyone was afraid of losing clients,” recalled one supply-chain manager. “If a buyer wanted goods, we shipped immediately—no questions asked.”
He noted that some containers, once arriving in the U.S., were left in limbo for months—neither paid for nor returned.
Around the same time, a new hookah-style brand received a purchase intention for 1 million devices from a U.S. distributor.
“They hadn’t even finished the prototype,” said a person familiar with the deal. “But the order was already placed.”
A batch of 70,000 units was shipped to the U.S. and subsequently seized by customs—becoming a textbook case of high-risk overtrading during the substitution boom.
IV. Restructuring: Head Brands Return, Channels Re-Concentrate
By the fourth quarter of 2025, Brand A had resumed shipments.
The six major U.S. distributors reactivated their networks, bringing what many described as a “surface recovery.”
Shelf space across national chains once again filled with top-tier brands, while substitution products were squeezed out.
“They don’t need promotion—once their system restarts, sales flow automatically,” said one distributor.
For manufacturers that had wagered all their cash flow during the shortage, the rebound proved devastating.
Unpaid balances, unsold inventory, and surging warehousing costs forced many mid-tier brands to retreat from the U.S. market.
During this process, some companies began to recognize the inherent asymmetry in their relationships with distributors.
“Even without intent, the six big distributors’ structure naturally produces a cleansing effect,” said S., an industry insider.He argued that the resumption of supply didn’t merely restore market order—it triggered a wave of credit elimination.
A long-time industry researcher, identified as L., described the phenomenon as a classic bullwhip effect.
“The enforcement shock months ago created panic buying and an exaggerated sense of shortage, inflating demand as it passed upstream through the supply chain,” he explained.“There’s nothing new here—business physics always apply. In the coming months, distributors sitting on excess inventory will undercut each other’s prices before regulators even need to act.”
At the same time, reports circulated that Brand A’s latest financing documents excluded the U.S. market entirely.
A source familiar with the company’s operations said this omission reflected an ongoing “off-record operation model” model.
“They’ll never abandon the U.S.,” the person said. “They just won’t record it in the books.”
V. The Manufacturing Mirage: The Myth and Reality of ‘Made in America’
As U.S. regulatory pressure intensified, “Made in the U.S.A.” emerged as the next selling point for Shenzhen-based manufacturers.
Yet, according to multiple interviewees, true American manufacturing remains more slogan than substance.
The most common form is “repackaging.”
Finished products shipped from China arrive at local e-liquid plants—such as Plant P—where original labels are removed and replaced with “Made in USA” packaging.
“The biggest orders now are just for repackaging,” said one industry insider. “The whole process takes less than two days.”
Another workaround involves certificates of origin issued through a Southeast Asian country.
Manufacturers set up shell entities that provide documentation certifying the goods as “made” there, before re-exporting to the U.S. under that label.
“It’s legally compliant trade,” said a logistics provider, “but it doesn’t change where the devices are actually built.”
A handful of firms, however, attempted genuine localization.
One startup invested roughly RMB 50 million (about USD 7 million) in a fully automated production line in the U.S., covering everything from assembly to packaging.
The founders recruited engineers with more than a decade of automation experience in America to return to China for equipment debugging—then sent them back to the U.S. for installation.
“It’s more show than production,” said a person familiar with the project.
The company uses videos of its robotic line as a marketing asset, showcasing “full automation and traceable manufacturing” to impress distributors.
“Automation has become the language of trust,” said S. “It doesn’t necessarily generate profit—but it wins cooperation.”
Still, even these automated facilities face a fundamental problem: maintenance.
Interviewees said the U.S. lacks the supply network and technical service base to sustain such lines.
“When a machine breaks, they just replace it—because repair costs more than it’s worth,” one insider remarked. “That’s the reality of so-called American manufacturing.”
VI. Channels Rewritten: The Survival Logic of the Downstream Players
As national distributors reestablished order, several small and mid-sized brands deliberately chose to avoid the center.
One mid-tier company that had built its own warehousing and delivery team in the U.S. prior to the market upheaval relied on a lean local operation—three employees, one small warehouse.
They packed boxes by hand, handled shipments themselves, and personally visited stores.
“The margins are thin, but the cash comes back fast,” said a person familiar with the model.
Similarly, a long-established vape brand that had spent years investing in the U.S. market—despite limited sales—had built a resilient retail network through persistent on-the-ground engagement.
When the shortage hit, this “boots-on-the-ground” strategy became its greatest strength.
“Others were gambling on orders; they were guarding relationships,” said S. “That kind of model has more resilience during chaos.”
VII. Compliance Anxiety: Waiting Becomes the Consensus
Across the industry, regulatory uncertainty has bred widespread anxiety.
Several interviewees said that only when monthly shipments stabilized at 4–5 million units could a company even consider entering the costly PMTA (Premarket Tobacco Product Application) process.
“The investment is huge and the cycle is long,” said one OEM owner. “Most companies just watch and wait.”
Some manufacturers, encouraged by distributors, have begun to “test the waters.”
One OEM, for instance, was told by a major channel partner that it would receive “deeper cooperation” if it completed the PMTA.
S., however, was skeptical:
“They don’t have the foundation—or the time—to pull it off.”
Within the industry, confusion over terminology has also deepened.
Interviewees emphasized that products with an MGO (Marketing Granted Order) remain unaffected by recent enforcement actions, while those without it—even with STNs, acceptance letters, or registration filings—face significant risk and cannot be freely sold nationwide.
“An STN or acceptance letter isn’t a moat—it’s a trading chip,” said S.“Some hang it on the wall as a credential; others use it to raise funds.But what really determines whether you can stay on shelves is having an MGO—not the paperwork in between.”
VIII. Innovation and the Gray Zone: The Rise of Nicotine Alternatives
Regulatory pressure has, paradoxically, become a driver of innovation.
In an earlier interview with 2Firsts, Allison Boughner, president of the American Vapor Manufacturers Association (AVM), noted that the U.S. market is now seeing the rise of “non-nicotine blends” such as Nixodine and Metatine (6-methyl nicotine)—compounds that mimic the sensation of nicotine without actually containing it.
Several American e-commerce sites have begun listing products labeled “0-nic” or “nic-free.”
These brands market themselves under the banner of “nicotine-free technology,” though chemically they occupy a gray regulatory space.
“It’s the gray zone of innovation,” said one market analyst. “Part opportunity, part risk.”
Boughner told 2Firsts that distributors have become the market’s gatekeepers—“They no longer look at price first; they look at documentation.Brands that can present PMTA acceptance letters, testing reports, and full labeling transparency are the ones that make it onto shelves.”
IX. Market Reflow: Recovery and Restructuring in Parallel
According to industry data shared by C., China’s e-cigarette exports to the U.S. rebounded to around 100 million units in October.
The shortage period has ended, and product flows are moving again.
Yet this recovery looks different from previous cycles—it comes with tighter concentration, fewer distributors, shorter payment terms, and fiercer competition.
On the surface, the U.S. market appears to have regained order.
But its underlying logic has shifted: competitiveness is no longer measured by scale or pricing alone, but by cash flow, compliance, and channel control.
“Restocking doesn’t mean recovery,” said S.“Some players have reclaimed the market. Others are out for good.”
X. Surface Recovery, Deeper Restructuring
The shortage exposed the market’s fragility.
The substitution wave created an illusion of demand.
The return of supply is now driving a structural reshuffle.
Within a single year, the U.S. vaping market has moved from disorder to consolidation, from reckless expansion to cautious contraction.
In this cross-border contest, no one is entirely safe.
Shenzhen’s manufacturing lines remain busy, but its entrepreneurs are more guarded.
U.S. distribution networks have regained stability, but at the cost of openness.
The market’s surface may look calm again—
yet beneath it, the real shake-up is still unfolding.
For ongoing coverage of developments in the U.S. vaping market, stay tuned to 2Firsts.
Cover image generated by ChatGPT.
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