Hoverboard Factories in China: A Case Study

About to import Hoverboards? This article might make you think twice. In this case study, we share the results of our own market research in the Hoverboard industry, and explain why the findings are relevant to buyers in virtually any industry.

We also explain why we believe that the reported incidents will also result in stricter regulations, and standardized certificate submission procedures. But first, let’s recap on what actually went wrong with the Hoverboard.

What went wrong with the Hoverboard?

The first reports of hazardous Hoverboards, or balance scooters as they are also called, came out in the last quarter 2015. Less than a year later, in July 2017, the CPSC recalled half a million non-compliant Hoverboards, in the United States.

So, what tarnished the reputation this, otherwise promising, product so badly? The same component that temporarly grounded the Boeing 787 Dreamliner fleet. The Lithium-Ion battery.

As explained in this article, a damaged Lithium-Ion battery can quickly catch fire, and even explode.

In this article, we try to explain what went wrong from the start, and why these incidents keep coming. We start with sharing the results of our own market research, conducted in January 2016, and then share our own thoughts about the causes.

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This is what we found when screening Hoverboard manufacturers in Shenzhen

Before we go into details, we shall present our methods. At first, we created a short list of almost 60 suppliers, claiming to be Hoverboard manufacturers.

For the record, almost all of these were based on the pearl river delta.

Based on their registered capital, business scope and available audit reports, we picked out 12 candidate suppliers, for further due diligence.

Before I go on, it is of importance to mention that the primary objective of this research was to identify Balance scooter manufacturers that could prove compliance with relevant safety standards.

Out of the 12 suppliers, only 3 of them made it to the list. This is why:

1. Most Balance scooter sellers are not qualified manufacturers

This one did not come as a surprise. Out of the 60 suppliers on our initial shortlist, roughly 55 were trading companies or even agents.

This is extremely common in many product segments, especially for products that are considered “trendy” – which definitely includes the Hoverboard.

This is also one root cause of the issue, as many inexperienced buyers choose their suppliers on pricing, web design and other (in the grand scheme) irrelevant factors.

2. Only a fraction of the sellers can show compliance documents. Yet, none can prove full compliance.

Out of 60 suppliers, we filtered out 12. Among those, only 3 suppliers could provide at least one valid and verifiable test report, proving that they had some sort of experience manufacturing products in compliance with EU or US safety standards.

However, even for these suppliers, not a single one could provide compliance documents valid for all components, which includes the following:

• Hoverboard unit
• Lithium battery
• AC Adapter (including cable and power plug)

As a complete set of documents is needed for each subsystem, which could not be provided.

Neither did this come as a surprise, at least not to us. In fact, this was a lot better than we first expected.

As for all products, testing comes down to the buyer, not the supplier. At least these Hoverboard factories could say that they had the technical capability to manufacture compliant products.

That is about as much as you can ask for.

That said, is important to note that a year ago, there were no safety standards developed specifically for Hoverboards. But more on that later.

3. You still get what you pay for

Finally, and possibly the least surprising finding of all; You get what you pay for.

A Hoverboard that is, for example, LVD and RoHS compliant costs more than one that is not. We did ask the suppliers to quote us the same product, one that is ‘EU compliant’ and one that is, well, ‘ready to explode’.

The former category cost about 20% more.

How can ‘hazardous products’ keep slipping through customs?

The fact is that Hoverboards, and other hazardous products, don’t accidentally slip through the customs. The door is wide open.

Why many people would assume that there’s some sort of checking procedures in place, to ensure that the goods that enter the market, comply with the legal safety standards – that is not the case. Well, at least not yet.

Until now, the customs authorities have made spot checks, but often focusing on basic labeling requirements and, at best, documentation.

Most shipments, however, get cleared through customs without checks. Indeed, it’s impossible to check all shipments. On the other hand, that wasn’t really necessary until a few years ago.

Today, anyone can get in contact with suppliers in Asia on the internet. Hence, the market is flooded with low quality and potentially hazardous products – imported by inexperienced, and sometimes unscrupulous, importers.

Who is to blame?

Most people would naturally blame the manufacturers. But things are not that simple.

I can tell from experience that many small importers could not care less about product safety.

I’ve heard business owners downplay, and even ridicule, the importance of ensuring that a product comply with the minimum safety requirements – partly due to a lack of enforcement from the authorities.

They also tend to think that all such procedures should be the supplier’s responsibility. Perhaps it should, but it’s still not applicable in reality.

So, what do they care about?

Pricing.

While making a product safe is “boring”, shaving off another 20 cents of the unit price is to many buyers a top priority. You get what you pay for, and that also applies to Li-Ion Batteries and Balance scooters.

Product safety comes at a price, albeit one that is far below what most would assume.

“I still want to import Hoverboards. What can I do to manage the risks?”

As proven by our own research, there are evidently qualified balance scooter manufacturers in China, that can produce compliant products.

That said, you will need to verify that the supplier is using components that comply with all relevant safety standards. For example, this means that you must submit the Hoverboard for third party testing, and ensure that the supplier procures batteries and AC adapters from reputable brands such as TDK and Samsung.

One problem facing Importers, at least in the United States, has been the lack of mandatory safety standards that applies specifically to Hoverboards.

Underwriter Laboratories develop standards for electronic products. While they have developed a testing procedure for Hoverboards, UL 2272, it is not a mandatory standard.

That said, American importers should still ensure compliance with all applicable UL standards, including those that apply to Li-Ion batteries, AC adapters and power plugs.

Even though not required by law, you will not be able to sell your product on Amazon unless your it is UL compliant.

European importers, on the other hand, can keep referring to LVD and EMC, as usual.

What are the long term effects of these incidents?

In early 2016 we received an email from a European importer of Hoverboards. The buyer was desperate, as the entire shipment was put on hold until they could present all relevant (and verifiable) compliance documents.

Of course, they had no such documents. This was not the only such email we received, and keep receiving from bankrupt buyers – but something stood out this time.

The owner explained to us that the shipment was seized by the customs authorities. Once the shipment was placed on hold, the buyer was contacted by the customs, and given a chance to present the documentation.

As mentioned, they had none. But what happened next is where the ‘fun’ begins.

The customs forwarded one unit to the testing facility of the national electronic product safety agency (that’s not what the agency is actually called), for safety tests.

Most likely, the customs authorities are instructed to check up on certain types of cargo, such as Hoverboards.

Given that this information must be specified in the Bill of Lading and other shipping documents, it’s relatively easy for them to know which shipments to put on hold.

Next, we see closer cooperation between different authorities, starting from the point of entry, with further surveillance of products that are already on the market.

In the future, we are also likely to see mandatory document submission procedures, which essentially will require Importers to submit all relevant test reports and product certificates to the Customs authorities – to even get the cargo cleared through customs.

This would be a revolution, but perhaps the only solution to a very serious problem.

Standardized compliance document checks will not only be implemented by governments around the world, but also private enterprise.

For example, Amazon.com.

Amazon is already requiring sellers of children’s products to submit CPSIA documentation.

It is not unreasonable to believe that it is only a matter of time before Amazon, and other online marketplaces, require compliance document submission for most other product categories too.

There are many lessons to be learnt from the Hoverboard related incidents. However, there might be something good coming out of this after all.