Tobacco giant British American Tobacco transitioning to smokeless products - will the switch sustain its existence?
British American Tobacco (BAT) is transitioning from traditional combustible tobacco products to less harmful smokeless nicotine products, demonstrating significant progress and strategic plans for this shift.
The company's smokeless products now account for about 18.2% of BAT’s revenue, with high-margin innovations like their Velo Plus oral nicotine products seeing a 384% revenue growth in Q2 2025 alone.
BAT's future plans include:
- Expanding their New Category segment (which includes smokeless products like nicotine pouches and heated tobacco) to achieve their goal of 50% of revenues from reduced-risk products (RRPs) by 2035.
- Continuing investments in R&D, including a £30 million facility in the UK, and strategic partnerships, such as a £74 million investment in the cannabis sector.
- Pursuing a multi-category approach globally, by reinforcing leadership in e-vapor products, oral nicotine, and heated tobacco, especially in markets like the U.S.
- Test marketing new smokeless products like the VUSE ONE disposable vape in the U.S., aiming to capitalize on the growing non-combustible market segment.
- Managing regulatory challenges such as flavor bans and taxation reforms in the U.S. and EU while balancing combustible product sales primarily in emerging markets.
This strategic pivot is repositioning BAT as a resilient, long-term player in the $17.7 billion global smokeless nicotine market, seeking to complement their traditional business with less harmful alternatives while responding to consumer and regulatory trends.
However, the company has faced challenges. BATS announced a non-cash impairment charge and wrote down the value of the acquired US cigarette brands by £28 billion in February 2024, resulting in a statutory loss of £15.8 billion in 2023. Management continues to pay down the debt, expecting net debt/EBITDA to fall below 2.5 times by the end of 2024.
BAT aims to buy back £700 million of shares in 2024, rising to £900 million in 2025. Shares in British American Tobacco (LSE: BATS) are trading on seven times next year's forecast earnings.
Despite these challenges, BAT remains optimistic about its smokeless product targets. However, the company warned in July that these targets may miss next year's marks. The FDA issued a ban on Vuse's menthol-flavoured vapes in October 2023, which account for around three-quarters of Vuse's sales.
The unauthorized single-use vapes, such as Elfbar (now EBDesign), imported from China, represent over 60% of the total US vaping market, equivalent to £60 billion of revenue in the US alone. Reynolds American, a subsidiary of BAT, owns Vuse, one of the leading US vaping brands, which has a global market share of just over 40%.
BAT held a Capital Markets Day themed around the firm's "sustainable growth algorithm" on 16 October at the company's innovation center in Southampton. The event highlighted BAT's commitment to building a "smokeless" world, aligning with Philip Morris International's aim to increase smoke-free product sales to two-thirds of sales by 2030.
[1] British American Tobacco. (2025). BAT Q2 2025 Results. Retrieved from https://www.bat.com/media-centre/news/2025/bat-q2-2025-results
[2] British American Tobacco. (2024). BAT Capital Markets Day 2024. Retrieved from https://www.bat.com/media-centre/news/2024/bat-capital-markets-day-2024
[3] British American Tobacco. (2023). BAT Strategy Update 2023. Retrieved from https://www.bat.com/media-centre/news/2023/bat-strategy-update-2023
- British American Tobacco (BAT) is investing significantly in finance and technology, as demonstrated by their £30 million R&D facility in the UK and strategic partnerships, such as the £74 million investment in the cannabis sector.
- In line with their business strategy, BAT plans to invest in various categories, including expanding their New Category segment and pursuing a multi-category approach globally in sectors like e-vapor products, oral nicotine, and heated tobacco, with a focus on seizing opportunities in the growing non-combustible market segment, like the US.
