In regard to supply chain cost, the manufacturing cost of a 50,000-puff disposable e-cigarette produced in Shenzhen, China, is approximately 5.5 per unit (including a 3000mAh battery, 20mL e-liquid and a mesh core), while the US retail price is generally 25 per unit. According to the 2023 “Global E-Cigarette Supply Chain White Paper”, when wholesalers place orders for 10,000 units, manufacturers can offer graded discounts: The unit price for products ranging from 1,000 to 5,000 is 8.2, for products ranging from 5,000 to 10,000 is 7.1, and for products over 10,000 is 5.9. The gross margins are 285.3 per unit at the agreed-upon price (with an additional 3% advance payment rebate), but the CE/FCC certification cost of $0.6 per unit must be incurred.
Regulatory risks have a profound effect on the discount room. The EU Tobacco Products Directive (TPD) dictates that the e-liquid volume should not be more than 2mL, but 50,000 puffs products usually have 20mL included (10 times above the stipulation). Out of the 230,000 pieces of merchandise seized by the Dutch customs in the year 2023, 89% were such products, and the fine for a single seizure was up to €9,000 per case (100 pieces per case). United States FDA enforces a PMTA review fee of 2,831 per unit on the products that contain a nicotine concentration of ≥5%, and it results in a rise of 28.3 per unit in compliance cost. Manufacturers tend to use the “zero nicotine” label to get around it (actual testing shows that 32% of products contain 6-12mg/mL of nicotine content), and the chance of wholesalers getting sued is as much as 17% (Data source: United States Federal Trade Commission)
Market competition and demand dynamics suggest that products with a 50,000-puff claim have witnessed a 320% year-on-year increase in traffic on social media websites like TikTok, but the median actual number of puffs consumed by customers is a paltry 18,000 (standard deviation ±7,200), with the return rate being as much as 12% (industry average 5%). The VPZ procurement plan, the UK’s biggest wholesaler of e-cigarettes, provides that the inventory turnover rate of the products should be 1.2 times a month (0.8 times for common goods) to cover the warehousing cost of $0.4 per piece per month, forcing wholesalers to offer graded discounts: a discount of 5% for more than 5,000 pieces ordered, with an additional discount of 3% for 50% advance payment of the goods.
Quality control problems counteract the discount benefits. Laboratory testing shows that the carbon deposit ratio of the atomization core in the 50000 puffs device exceeds 47% after 8,000 openings, and the volume of smoke decreases by 53%. Battery cycle life (300 times) only supports 60% of the theoretical value. In the 2024 German TUV certification spot check, only 11% of goods passed 5,000 charge and discharge tests, while the remaining 89% suffered leakage or power attenuation after 1,500 tests. The average annual after-sales cost for wholesalers was 8.2% of the purchase price.
Profit is restricted by payment terms and logistics. The freight for a 40-foot container from Yantian Port in Shenzhen to the Port of Los Angeles is 3,800 (peak 12,000 in 2023), and 24,000 pieces of equipment are transported per container. The logistics cost is diluted to 0.16 per piece. If air transport (8.5/kg) is utilized, the freight of 500kg goods (approximately 3,300 pieces) skyrockets to 4,250, and the unit freight rate is 1.29. Manufacturers normally require a 30% deposit and the balance on delivery, while the payment term for distributors is usually 60 to 90 days. The pressure of capital turnover has reduced the annualized return rate from 23% to 14% (Data source: Deloitte’s financial Analysis of the e-cigarette industry).
The conclusion is that although the wholesale deal of 50,000 puffs devices looks good on the surface, there needs to be a comprehensive thinking through of unseen costs (compliance, returns, logistics) and market risks. According to the “Global Nicotine Market 2024”, only when the retail price is ≥$19.9 per unit and the monthly sales volume is ≥2,000 units, the net profit margin of wholesalers can be maintained at >18%, otherwise, they will be in the situation of “high volume and low profit”.