Executive Summary / Key Takeaways

• RLX Technology is undergoing a significant transformation, pivoting from a China-centric model to aggressive international expansion, driving robust revenue growth and improved profitability.
• The company's strategic focus on in-house technological innovation, particularly in high-capacity cartridge-based e-vapor products and emerging oral nicotine alternatives, positions it to capitalize on evolving global consumer preferences and regulatory shifts.
• Despite a challenging domestic market dominated by illegal products, RLX's compliant approach and collaboration with regulators are strengthening its position in China's legal segment.
• Strong financial health, characterized by consistent operating cash inflows, a negative cash conversion cycle, and a substantial cash position, underpins strategic investments and a progressive shareholder return program.
• RLX's ability to adapt swiftly to diverse regulatory landscapes and competitive pressures, coupled with its localized go-to-market strategies, is critical for sustaining market share gains and achieving its ambitious global growth targets.

The Global Shift: RLX's Strategic Reignition

RLX Technology Inc., founded in 2018, has rapidly evolved from a domestic e-vapor leader in China to a formidable player in the global smokeless alternative market. The company's journey has been defined by its strategic agility in response to a dynamic industry landscape, marked by increasing regulatory scrutiny and shifting consumer demands worldwide. This narrative is not merely about survival but about a calculated expansion and technological leadership that is reshaping its investment profile.

The broader nicotine market is undergoing a profound transition, with adult smokers increasingly moving away from traditional cigarettes towards reduced-risk alternatives. E-vapor products remain a primary driver of this shift, complemented by emerging categories like heat-not-burn devices and modern oral nicotine products. These segments are largely complementary, each addressing distinct consumer needs—e-vapor for portability and performance, heat-not-burn for a conventional smoking feel, and oral nicotine for discretion and convenience, particularly among office workers and travelers. This multi-category ecosystem is poised to capture a significantly larger share of the total nicotine market over the next five to ten years, with oral nicotine currently experiencing the fastest growth.

RLX's overarching strategy is deeply rooted in this industry realignment. Following the termination of its non-compete agreement in November 2023, the company embarked on an aggressive internationalization drive, leveraging its integrated business model, which encompasses targeted go-to-market strategies, a comprehensive product portfolio, refined supply chain management, and focused user engagement. This model, honed in China, is now being successfully replicated and adapted to diverse international markets.

Technological Edge and Product Evolution

RLX's competitive advantage is significantly bolstered by its in-house technological capabilities and a proactive approach to product innovation. The company's core strength lies in its cartridge-based technology, which it applies across both closed and open system e-vapor products. This focus is particularly strategic given the growing global scrutiny and bans on disposable e-vapor products due to environmental concerns. By investing in new product development and optimizing e-liquid and cartridge integration, RLX aims to lead the industry's transition towards more sustainable solutions.

A prominent trend in 2025 has been the "Big Puff effect," where consumers are increasingly gravitating towards devices offering a higher puff count per unit. This trend has driven substantial increases in product capacity, effectively reducing the per-milliliter cost of e-vapor consumption for users. RLX has responded swiftly by launching a range of high-capacity products tailored to local preferences, including disposable, closed-system, and open-system cartridge-based devices, since the second half of 2024. For instance, while traditional products might contain 2 milliliters of e-liquid, RLX's newer Big Puff offerings can hold between 14 to 20 milliliters. This innovation directly addresses consumer demand for enhanced cost-effectiveness and convenience, attracting former disposable users.

Beyond e-vapor, RLX is strategically diversifying its portfolio. The company initiated a pilot program for modern oral nicotine products in 2024, completing 2B prototypes that have received positive feedback from distributors. This move into a rapidly growing segment is intended to broaden its portfolio, reduce risk, and capture greater market share. Furthermore, RLX's open system products, such as the RLX Prime and Spin Mini series launched in Southeast Asia, are designed for affordability and convenience. The RLX Prime features extended e-liquid storage capacity for longer usage, while the RLX Spin Mini offers a dual-flavor pod system, catering to local preferences with cost-effective solutions and superior user experiences. These innovations underscore RLX's commitment to meeting evolving consumer needs while adhering to regulatory requirements.

Financial Resilience and Growth Trajectory

RLX Technology has demonstrated remarkable financial resilience and a clear growth trajectory, particularly driven by its international expansion. In the second quarter of 2025, the company reported net revenues of RMB 880 million, marking a 40% year-over-year increase and a 9% quarter-over-quarter increase. This robust performance was significantly bolstered by the successful internationalization strategy and the consolidation of a recently acquired European e-vapor company in June 2025. The China business also contributed with significant year-over-year growth, attributed to stricter controls against illegal products and the successful launch of new disposable product series in late 2024.

Profitability has also seen substantial improvement. The gross margin expanded by 2.3 percentage points year-over-year to 27.5% in Q2 2025, reflecting a favorable revenue mix from international markets and ongoing cost optimization efforts. The company achieved its seventh consecutive quarter of positive non-GAAP operating profit, reaching RMB 116 million in Q2 2025, with the non-GAAP operating margin expanding by over 5 percentage points year-over-year to 13.2%. This improvement is a direct result of contributions from the fast-growing international business and enhanced operating leverage. For the full year 2024, revenues reached RMB 2.7 billion, a 73.3% year-over-year increase, with a non-GAAP operating income of RMB 262.5 million.

RLX maintains a strong liquidity position, with total financial assets, including cash and equivalents, restricted cash, and various deposits and investments, standing at RMB 15.5 billion (approximately USD 2.2 billion) as of June 30, 2025. This provides substantial flexibility for strategic growth and innovation.

The company also boasts a negative cash conversion cycle, a competitive strength, with inventory turnover at 31 days, receivable turnover at 16 days, and payable turnover at 67 days in Q2 2025. RLX has reaffirmed its commitment to shareholder value by announcing its third cash dividend since its IPO, with a plan to distribute $0.01 per ordinary share or ADS in 2025, and intends to return substantially all of its non-GAAP net profits through share repurchases and dividends.

Competitive Landscape and Strategic Positioning

RLX operates in a highly competitive and rapidly evolving global market, contending with both established tobacco giants and agile e-vapor specialists. Compared to multinational players like Philip Morris International (PM), British American Tobacco (BTI), and Altria Group (MO), RLX distinguishes itself through its localized expertise, rapid innovation cycles, and a compliance-driven approach. While global competitors possess vast financial resources and established international brands, RLX's more flexible organizational structure allows it to bring market-specific compliant products to market faster and respond promptly to changing trends or regulatory updates.

RLX's competitive advantages are particularly evident in its product development and route-to-market strategies. The company's in-house e-liquid development team and production capabilities enable it to fine-tune key product elements like flavor, taste, and quality control, delivering high-quality products tailored to local preferences. This contrasts with some peers who may rely more heavily on distribution without deep product development capabilities. In Europe, following its March 2025 investment agreement with a leading compliant e-vapor company, RLX has adopted a new approach, positioning itself as a retailer, distribution partner, and brand operator, allowing its products to compete on equal footing with other brands within the acquired company's channels. This strategy provides first-hand insights into European market trends and strengthens its local market share.

Despite its strengths, RLX faces vulnerabilities. The domestic China market remains heavily impacted by illegal products, which account for an estimated 80% to 90% of the total e-vapor market. RLX, as the largest compliant brand, actively collaborates with regulators to combat these illicit sales, viewing stricter enforcement as an opportunity to gain market share in the legal segment. In international markets, the regulatory landscape is highly fragmented and dynamic, with bans on disposable products, excise taxes, and enhanced enforcement posing continuous challenges. However, RLX views these shifts as opportunities to strengthen its competitive position, as increasing regulatory requirements make it harder for smaller players without robust product development and supply chain capabilities to keep pace.

Outlook and Key Risks

RLX's management anticipates a transitional year in 2025 for the e-vapor industry, particularly due to the "Big Puff" effect. While this trend has driven an increase in e-liquid consumption by volume, the lower per-milliliter average selling price has stunted industry dollar value growth. Management expects the market to gradually stabilize towards the end of 2025, establishing a new baseline for healthy, sustainable growth in 2026 and beyond, as physical constraints limit further enlargement of devices. RLX is confident in achieving positive dollar growth in 2025, outperforming the broader industry which may experience negative growth.

For the second half of 2025, RLX's priority is to strengthen distribution and retail capabilities in Asia and Europe, optimizing its product portfolio for enhanced competitiveness. Looking further ahead, the company plans to expand into additional European and selected Asian countries, and potentially another continent, by early 2026, contingent on stable macroeconomic and regulatory environments. Management expects the international e-vapor industry to experience an annual growth rate in the teens over the next few years. In China, absent significant regulatory changes, the legal market is projected to remain stable or see only modest growth. RLX also expects further improvement in its non-GAAP operating margin as it scales globally, with operating expenses growing slower than revenue.

Key risks to this outlook include the unpredictable nature of global regulatory changes, which can lead to product bans, new taxes, or delayed market entry plans. The continued dominance of illegal products in the China market also poses a significant challenge to the growth of the compliant segment. Macroeconomic headwinds and political instability in certain target markets could further impact expansion efforts. However, RLX's diversified market presence and robust inventory management system are designed to mitigate risks associated with over-reliance on any single market or unexpected regulatory shifts.

Conclusion

RLX Technology is at a pivotal juncture, transforming from a domestic champion into an international growth story. Its strategic pivot towards global markets, underpinned by a deep commitment to compliance and continuous technological innovation, positions it favorably within the evolving smokeless alternative industry. The company's ability to adapt its product portfolio to meet shifting consumer demands, such as the "Big Puff" trend, and to navigate complex regulatory landscapes, particularly through its focus on sustainable cartridge-based solutions and multi-category diversification, is central to its investment thesis.

Despite the persistent challenge of illegal products in China and the dynamic global regulatory environment, RLX's strong financial performance, robust cash generation, and proactive shareholder return program underscore its operational effectiveness and management's confidence. The company's strategic investments in international distribution networks and localized operations, exemplified by its European acquisition, are designed to capture incremental market share and drive sustainable growth. As the industry matures and regulatory clarity increases, RLX's integrated model and technological leadership are poised to solidify its competitive standing and unlock significant value for shareholders in the years to come.