After one year of strong regulation of e-cigarettes, does Yueke still have a future?

The once prosperous e-cigarette industry did not see the dawn of "empty air" one year after the strongest regulatory measures were implemented.
On October 1, 2022, mandatory national standards for e-cigarettes were officially implemented, strictly limiting the marketing behavior and taste diversity of e-cigarettes.
It has been a year since the implementation of intensive regulation, and the heavy losses suffered by the industry can be seen from the recent 2023 semi annual report released by the electronic cigarette giant Yueke. Wuxin Technology's revenue in the first half of 2023 was 567 million yuan, compared to 3.948 billion yuan in the same period last year, a year-on-year decrease of 89.63%.
In its latest quarterly ESG report, Foxion Technology indicates that companies have invested a lot of effort in compliance, especially in cooperating with regulations and investing in the research and development of electronic cigarette harm reduction.
But all of this seems difficult to offset a series of impacts after the implementation of regulations. On the one hand, the production quotas set by the government limit the expansion limit of e-cigarette manufacturers; On the other hand, the introduction of consumption tax across the entire e-cigarette industry directly drives up the price of e-cigarettes.
After strong regulation has completely constrained the industry's prospects, Wuxin Technology still needs to find its own way of survival in the cracks.
Has Yueke come over yet?
When the e-cigarette industry first emerged, as a rising star with the potential to overthrow the traditional tobacco industry, it quickly became a darling of capital and performed well in both market performance and market value. On January 22, 2021, electronic cigarette giant Wuxin Technology landed on the New York Stock Exchange, and on its first day of listing, it closed up 145.92% with a market value of 296.6 billion yuan. 39 year old founder Wang Ying, with a 54.3% stake and a value of over 160 billion yuan, became the second richest woman after Yang Huiyan, the major shareholder of Country Garden.
However, with the gradual implementation of domestic regulatory policies, the market value of Wuxin Technology has also been continuously declining. The stock price has plummeted from its highest listing of $35 to $1.58.
Yueke's parent company, Wuxin Technology, recently released financial reports showing that its revenue in the second quarter of 2023 was 380 million yuan, a year-on-year decrease of 83.1%. Due to user churn and competition from black manufacturers, the revenue of Wuxin Technology has significantly decreased. On the other hand, with the introduction of consumption tax in the e-cigarette industry (which previously only required value-added tax), the profit margin of enterprises has also significantly decreased.
During a conference call, executives from Foxconn Technology stated that the visibility of performance in the second half of the year is relatively low, and there is still "uncertainty" in the full year's performance.
When the industry once believed that after the implementation of regulations, the negative effects would be exhausted, and the electronic cigarette industry would eventually usher in a new dawn. However, it was unexpected that various regulatory policies such as quota systems have actually locked the growth limit of e-cigarette enterprises, while on the other hand, the endless emergence of counterfeit e-cigarettes has in turn eroded the market for authorized e-cigarettes.
When e-cigarettes were first launched, they swept through the traditional cigarette market with various flavors, and due to the fact that various "fruit flavors" were essentially the "first puff" of non-smokers and even minors, this posed endless harm to public health. Since October last year, multi flavor flavored e-cigarettes have been banned from being sold on the market, and legitimate e-cigarettes can only be tobacco flavored. However, since then, the flavoring cigarette bombs have still circulated in the market through informal channels, many of which are illegally produced products. This is considered an important reason why formal e-cigarettes cannot be produced in the post regulatory era.
During a financial report conference call, executives from Foxconn Technology stated that after the special action of regulatory agencies to crack down on illegal products ended in April, the sales of national standard products were once again disrupted by illegal flavored electronic cigarette products in the market. Those illegal products are manufactured by illegal e-cigarette processing factories with attractive flavors and lower prices than compliant products. In addition, they do not pay taxes, creating an unfair market environment and affecting the recovery of the e-cigarette industry in the legitimate market
Once used by e-cigarette companies to challenge the "taste" of traditional cigarettes, it has instead become a major weapon for counterfeit e-cigarettes to erode national standard e-cigarettes.
It must be said that the gift of fate has already been secretly priced.
Wuxin Technology Stock Price
The original sin of 'unable to escape'
Although the revenue and profit have plummeted by nearly 80%, Wuxin Technology is still striving to prove its social value and the rationality of the industry's existence.
In its recently released ESG report, Mistcore Technology devoted a significant amount of space to introducing its efforts in product quality, innovation, and harm reduction.
Mistcore Technology stated in the report that, As of the end of 2022, we have published 7 papers in international journals that demonstrate the inhalation safety and relative harm reduction of electronic atomizers. At the same time, we actively cooperate with universities and research institutes to carry out scientific research related to harm reduction of electronic atomizers, including the Chinese Academy of Sciences, Zhongshan University, Fuzhou University, etc., studying electronic atomization science from different dimensions and continuously expanding our understanding of this field
The latest research achievement jointly published by Foxcore Technology and universities was an SCI paper published in November 2022 with Fuzhou University in Toxicology in Vitro, which studied the effects of traditional cigarettes and e-cigarettes on human bronchial epithelial cells through the study of exosomal proteomics. It was demonstrated that the toxicity of e-cigarettes is significantly lower than that of traditional cigarettes.
Several other papers published within a year have also clearly demonstrated that the toxicity of e-cigarettes is significantly lower than that of traditional cigarettes.
It has to be said that after the implementation of strong regulation, Yueke is still proving its harm reduction role, and it is truly courageous. After all, the red line drawn by the policy is right under the feet: e-cigarettes cannot promote themselves on the grounds of "less harm". So Yueke said that "the toxicity of electronic cigarettes is lower than that of traditional cigarettes", which can only be limited to academic research and cannot be further explored.
And in the research on the harm of electronic cigarettes, there are still quite a few authoritative institutions that believe that the harm of electronic cigarettes is not as low as it appears.
The International Anti Tuberculosis Association recommends that low-income and middle-income countries fully ban e-cigarettes as a protective and preventive measure. These countries are easily infiltrated by e-cigarettes, making tobacco more popular.
The European Respiratory Society points out that there is no evidence to prove the safety of e-cigarettes, and the so-called "harm reduction strategy" is based on false or unproven claims or assumptions (such as smokers not being able to quit smoking, e-cigarettes helping to quit smoking, and smokers completely switching to e-cigarettes). The society cannot recommend any products that are harmful to the lungs or human health.
The European Heart Association points out that e-cigarettes have an impact on cardiovascular health, but the long-term impact on health and the effectiveness of quitting smoking are still not significant. It is recommended that smokers should first use recognized methods to quit smoking.
Although e-cigarettes have made efforts in various fields to prove that they are less harmful than traditional cigarettes, the global tobacco control led by the World Health Organization still has a strong regulatory attitude towards e-cigarettes.
Perhaps it is true that 'e-cigarettes are less harmful than traditional cigarettes', but the goal of the World Health Organization is a' smokeless society '. Electronic cigarettes are like the tobacco industry or smokers giving themselves a step down, which still goes against the goal of a "smokeless society". Electronic cigarettes are also cigarettes, and the so-called "harm reduction" may attract minors or non smokers to relax their vigilance towards them.
In recent years, the World Health Organization has released an annual report on the global tobacco epidemic. The report for 2023 was released on July 31 of this year. The World Health Organization continues to urge countries to strengthen their regulation of e-cigarettes in its report. It mentioned that in 2022, 34 countries completely banned the sale of e-cigarettes, and 42 countries completely banned people from smoking e-cigarettes in public places, several more countries than last year. Strengthening regulation is a major trend, but the World Health Organization is clearly not satisfied with the pace of progress.
It is worth noting that this year's "Global Tobacco Epidemic Report" specifically reminds us of the potential hazards of electronic cigarettes and second-hand cigarettes.
The controversy over second-hand smoke - Mist Core Technology clearly recognized this new risk early on. In 2021, the company established a new aerosol laboratory and immediately began to study the toxicity of aerosols - in other words, to study the toxicity of second-hand electronic cigarettes. By September 2022, Mist Core Technology's first SCI paper on second-hand smoke was published, stating that second-hand smoke from e-cigarettes causes less damage to the respiratory system than cigarettes.
But what this means is that second-hand cigarettes are less harmful than cigarettes, not without harm.
The latest ESG report from FogCore Technology mentions a set of numbers:
And the report goes on to say: We strictly control these potentially high-risk substances during the product development process.
Do you feel scared? Electronic cigarette companies are aware that these "potentially high-risk chemicals" may exist in second-hand smoke (aerosols), but they have not told you how much harm these substances have been reduced.
A confused future
For Wuxin Technology, the current issue is not only about regulation, but also whether there is room for sustained market growth in the future. It is also a major challenge for Yueke and even the e-cigarette industry.
With the implementation of the domestic e-cigarette quota system, the sales ceiling of domestic e-cigarette enterprises has actually been set. This also makes Yueke and other companies lose the possibility of volume expansion.
But the good news for Yueke is that as the crackdown on black production continues to increase, users may return to using products with the new national standard tobacco flavor. With the gradual acceptance of the concept of reducing harm in electronic cigarettes by smokers, the market share is expected to expand.
However, in the existing market, there is still a strong layout of China Tobacco, which has started fierce competition with its monopoly position in channels and brands. On the other hand, Article 20 of the "Electronic Cigarette Management Measures" stipulates that electronic cigarette sales shall not be exclusively operated, which means that Yueke's future survival map will be even narrower.
How about the overseas market as the domestic market shrinks?
Compared to the increasingly strict regulatory policies in the domestic market, the overseas market has a broader user base and future prospects. The report "2022 Blue Book of Electronic Cigarette Industry Export" shows that the global electronic cigarette market size will exceed 108 billion US dollars in 2022, with the overseas electronic cigarette market size maintaining a growth rate of 35%, with a total size exceeding 100 billion US dollars.
Currently, the vast majority of brands and manufacturers are starting to focus on overseas markets. Yueke attempted to explore overseas as early as 2019, and its overseas business "Yueke International" has covered more than 40 countries worldwide since its establishment in 2021, accumulating millions of consumers.
In terms of the penetration rate of e-cigarettes among smokers in various countries, this market still has prospects. According to the 2021 World Tobacco Development Report, the penetration rate of e-cigarettes in European and American countries is generally between 30% and 50%, and there is still some room for improvement in the future.
But this market already has mature giants occupying the majority of the market share. According to the Nielsen Convenience Store report released on June 19, 2023, Renault's Vuse e-cigarettes continue to occupy a leading position in the US market, with a slight increase in market share. Vuse accounts for 42.3% of the US e-cigarette market share, followed by Juul accounting for 25.6%, and NJOY accounting for 2.8%.
This also means that domestic e-cigarettes need to face the market that foreign giants have already divided up, and the difficulty of expanding can be imagined.
In terms of overseas regulation, the electronic cigarette industry is facing increasingly strict regulatory measures. In June 2023, some countries have expressed that they are considering taking further new measures to regulate e-cigarettes.
The UK government has stated that it is filling legal loopholes to curb e-cigarette companies from providing free samples to children. The UK government is considering "further measures" against e-cigarettes, which may include banning brands with fragrance or color.
Kazakh President Kasim Sulayman Tokayev emphasized at the national conference that e-cigarettes have posed a "threat" to teenagers. He stated that e-cigarettes have become popular among teenagers, mainly because they are widely available and advertised as harmless. He said, "We need to take urgent and systematic measures to combat this dangerous phenomenon, and relying solely on bans is of no use
The New Zealand Ministry of Health is currently developing measures to address the issue of electronic cigarettes used by adolescents. The measures include restricting retailers from selling e-cigarettes near schools or sports fields, standardizing e-cigarette flavor names, and strengthening supervision of disposable e-cigarette products.
Although the penetration rate of e-cigarettes among Chinese smokers is between 3% and 5%, there is huge room for improvement. However, the practical problems that need to be faced in China are even more difficult, and counterfeit products and underground channels still plague Yueke.
For Yueke, the future is still in a fog.