British tobacco company looks to China for smoke-free future

Electronic smoking devices present new opportunities

London-based British American Tobacco has invested an undisclosed amount in China Materialia, a Shanghai-based venture capital fund which will help the cigarette company develop smoking alternatives that do not burn tobacco.

British American Tobacco, which is also known as BAT, is the second-largest tobacco company in the world and owns popular cigarette brands including Dunhill, Lucky Strike and Pall Mall. This is the first time BAT has invested in a venture capital fund as part of research and development activity.

As the damaging effects of cigarette smoke have become widely accepted, several cigarette companies and dozens of technology firms have developed new devices, including electronic cigarettes, known as e-cigarettes, and vape kits, that deliver nicotine without burning tobacco.

“We are excited to be working with China Materialia,” a BAT spokeswoman told China Daily. “It’s still very early days and so we’re limited as to what we can say, however we’re excited about the potential benefits our investment may bring. China is an increasingly important center for technology and innovation – our investment in the fund allows us to tap into this.”

The invention of the e-cigarette is often attributed to Chinese medical researcher Hon Lik, and the vast majority of the world’s e-cigarette and vaping hardware is produced in China.

Vaping and e-cigarette devices have become popular in the UK, where sales of products reached 1 billion pounds ($1.34 billion) last year. Nine million users in the United States spent $3.7 billion on vape products in 2017.

E-cigarettes have yet to catch on in China as they have in the West, and the market has massive potential for growth, according to recent research.

A 2017 study by Dublin-based analysts Research and Markets valued China’s domestic e-cigarette industry at $175 million, with an estimated 1 million regular vapers in the country, versus 350 million smokers.

Barriers to growth for the e-cigarette industry in China include the relative cost of products when compared to tobacco, and lack of availability of products in bricks-and-mortar stores. Around 80 percent of e-cigarette sales in China occur online, according to Research and Markets.

BAT said that the investment in China Materialia will provide the company with access to new and emerging technologies and help with the development of “next generation products”. BAT already owns several vape brands, including Vype, Vuse, Ten Motives and Chic. This year the company will launch Glo, a tobacco-heating device that produces a nicotine-containing aerosol instead of smoke.

The company made 500 million pounds from worldwide sales of vaping products last year and estimates that figure will reach 5 billion pounds in the next four years.

BAT is one of five corporations to invest in China Materialia in recent funding rounds, including United States-based chemical company BASF, California-based venture capital company GE Ventures, South Korean technology firm Samsung, and Saudi Arabian manufacturing firm Saudi Basic Industries Corporation.

“We are absolutely delighted to have five great corporate strategic investors joining China Materialia,” said Min Zhou, chief executive of China Materialia. “Partnership with these corporates can bring tremendous value to our portfolio companies and accelerate their path to commercial scale and global market.”