Everyone Knows About E-Cigarettes, But There's A Reason Why They Have Just 1% Of The Tobacco Market

The potential for e-cigarettes to remake the tobacco industry remains huge.

But that moment is still a long way off, according to Morgan Stanley analyst David Adelman.

He explains that, yes, e-cig growth is already reducing regular cigarette consumption in the U.S., but only by a tiny bit.

"Consumers are clearly interested in e-cigs, but they have a ~1% & not a 10% share for a reason," he writes. "There is near universal awareness of e-cigs, with about 50% trial among smokers."

"The fact that the category – today – is equivalent to only ~1% of US cigarette industry volume, in our view, demonstrates that the existing e-cigs do not fully satisfy smokers’ expectations."

Here's more from Adelman:

...this is similar to the market share of Newport Red, and is significantly smaller than – on a unit equivalent basis – both the little cigar and pipe-your-own segments.

To us, this indicates that the current products still do not fully meet the expectations of smokers from a performance, experience, branding, and familiarity perspective.

We also believe that e-cigarettes’ share indicates some evidence of trial and rejection, as well as trial and selective and occasional use among continuing smokers (as opposed to wholesale product substitution).

Adelman does not say what exactly smokers find e-cigs' shortcomings to be.

But our Chris Anderson — who actually raved about them generally — notes that their battery life remains terrible.

Something to work on.