Technology ¹ Business Model

The Struggle of the Electric Vehicle Company

Preparing the Turn-Around

In early 1904, Richard W. Meade assumed leadership of the ‘Electric Vehicle Company’ (EVC). When
the board asked him to step into the position, he felt honored and blessed. The EVC was not just
another company. It was the largest manufacturer of automobiles in North America and at the same
time the largest cab company in New York City. The fleet contained 650 electric vehicles and an
impressive infrastructure, including the world’s largest charging station for electric vehicles on
Broadway with space for 100 vehicles and a number of smaller stations all around Manhattan. Even
though the company was operationally profitable in New York, Meade knew why he had been hired.
The last five years had been a constant struggle for the company. In 1900, the majority of the
automobiles in the US had been electric and most of them were owned and produced by the EVC.
The company served clients not only in New York, but also in Boston, New Jersey and Chicago and
had ambitious plans to expand even further. However, the operations in the latter cities had been
a catastrophe, and after one year, his predecessor decided to shut them down all together. Now, it
seemed that the operational problems spilled over to New York.
But Richard was confident in his abilities to turn the company around. He could look back at
an impressive career of 15 years in the railway industry, and operations were his specialty. When
Meade looked down from his new CEO office onto the busy intersection of 27th street and 9th
avenue, the scene triggered his imagination and made him hopeful for the future. The horse cabs
he saw were mostly empty, here and there he could spot a gas automobile with their spoiled and
rich drivers, but what was dominating the scene were the many electric EVC cabs, all of which were
busy transporting customers. He knew that the demand was always high, even higher than the
supply his company offered. “This will be the back-bone of the turn-around”, he assured himself.
However, he was less sure where to start. Was it the operations he needed to adjust, or the business
model? And what role did technology play? Sitting back at his desk, Richard started to dive into the
analytical reports, memos, and documents about the previous business years of the EVC.

The Birth of the Automobile

Industrialization
The 19th century was potentially the most transformative period for human mobility and
transportation. From the invention of the wheel (4500-3300 BC) until the first half of the 19th
century, people had two options to move from A to B: walking and using animal-based forms of
transportation. In the year 1800, people used horses, cows, and donkeys, riding directly on their
backs or sitting in a carriage pulled by the animals. 100 years later, the options for transportation
had substantially increased and roads were buzzling with crisscrossing trains, streetcars, buses,
bikes, horse cabs, and automobiles.

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 New options for mobility met an ever-growing demand. The invention of machines and the
application of the steam engine, in particular, led to the building of large factories. These factories
required an ongoing supply of natural resources, such as cotton, steel, or coal, as well as an army of
workers. Manufactured goods then had to make their way back to customers, usually clustered in
increasingly larger cities and metropolitan areas. As more and more people shifted from farm labor
to factories, they also moved from the countryside to cities, and commuted to their workplaces in
the factories. In addition, a new middle class, called ‘the bourgeoise’, emerged. This class consisted
of wealthy traders, doctors, teachers, lawyers, clerks, and other occupational groups with medium
to high social status. The continuously growing cities made it necessary for both the workers and
the bourgeoise to commute and travel around, following their own businesses.

Re-imagining Mobility
The first important innovation in the mobility sector of the 19th century was the steam powered
train. In 1825, the first public steam-powered railway line was opened between Stockton and
Darlington in Great Britain. Even though the line covered a distance of only 9 miles, it marked the
starting point of a massive transformation of long-distance travel and of the massive expansion of
railways in Europe and North America. By 1900, the US railway system covered 193 million miles,
and goods and people could smoothly travel from coast to coast and across the entire country.
Steam powered trains could transport raw material, goods, and people at a large scale, over long
distances, and at, for the time, remarkable speed. Early trains had a maximum speed of 30mph. At
the end of the century, they could reach up to 87mph. The scale, distance, and speed were
unreachable for any animal-based mode of transportation.
Even though trains were cheap to operate, the infrastructure they required, such as rails and
refill stations for coal and water, was costly to build. Another disadvantage was that they were not
well suited for short-distance and inner-city transportation due to their massive steam emissions.
As the most prominent inner-city alternative to steam powered trains, streetcars found their way
onto streets in Europe and the United States to transport people. First introduced in 1807, early
streetcars were rail-based and horse powered. Later the horses were replaced by electric engines.
The engine was either connected to an electric battery or the streetcar was linked to an overhead
wire. For both trains and streetcars, customers paid on a per trip basis. Building the infrastructure
for streetcars, especially rails and overhead wires, was costly but, once established, the operational
costs were relatively low.
Another form of inner-city mass transport were horse-drawn buses. Introduced around the
same time as streetcars, they remained a European phenomenon, because road conditions and the
technology of pneumatic tires made it impossible to operate buses in the US. In combination with
bad road conditions, early pneumatic tires were unable to handle the heavy weight of the buses and
their load longer than a few weeks. Buses with gas and electric engines appeared much later and
were not operated profitably until the very end of the century.
While streetcars were bound to rails and transported people mainly on large roads with high
demands for mobility, demand for door-to-door mobility was satisfied by horse-carriages.

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Customers could hail horse cabs driving around the streets or go to hack stands placed all around
the city. Later, customers could also order horse cabs by phone. The public image of the horse cab
was mixed. On the one hand, they were the backbone of individual transportation in cities; on the
other hand, people despised them due to the often rude behavior of the cabmen, the smell of horses
and the piles of horse manure accumulating in the large cities.
The horse cab business was almost entirely based on renting. It was, even for wealthy
individuals, very unusual to own a horse cab. Customers of horse cabs would either rent them
spontaneously on the streets or via phone calls, or by signing a long-term lease agreement with a
cab company guaranteeing them a cab with driver whenever needed. The horse-cab was the
dominant mode of individual transportation until at least the 1880s, before new innovations
disrupted the industry yet again.
The first one was the bicycle, introduced in 1818. In the decades after, bicycles were on the
fringes of mobility. Due to their design with two wheels in different sizes they were complex to ride
and completely unusable for urban road conditions. In 1885, the design was changed to two wheels
of the same size. This design change opened up a mass market for bicycles. In contrast to most other
forms of transportation, bicycles were directly sold to consumers. The success of the bike varied
much from city to city. The more hills and the worse the roads and weather conditions, the less
bicycles were on the streets. Furthermore, it was rather seen as a mode of transportation for leisure
than on an everyday basis.
Throughout the entire century, engineers and entrepreneurs were imagining so-called
“horse-less” carriages. Given this framing of the problem, it is perhaps not surprising that early ideas
resembled carriages in every way, except for the lack of horses (Exhibit 1). Later the horse-less
carriage was renamed automobile. Even though the invention of the automobile is often associated
with the German engineer Carl Benz (founder of the company Mercedes-Benz), who in 1888
patented the first gas propelled automobile (Benz Motorwagen, Exhibit 2), there is evidence for
earlier automobiles. Most of these early models were propelled by steam and electric engines.
While the early development of the automobile was very experimental, it took until the last decade
of the century until entrepreneurs first tried to match the technology with an adequate business
model.

Early Automobiles in the US

The early automobiles captured people’s imagination. Pioneer engineers developed gas, steam, and
electric automobiles and competed for public acceptance and technological superiority of their
“version of the mobility future”. New magazines and newspapers, such as the ‘Horseless Age’ and
the ‘Motor Age’, were launched onto the market targeting auto-enthusiasts. Conventions and races
were held in which automobile engineers showcased the potential and quality of their cars. In
contrast to Europe, where an automobile was evaluated mainly on speed, which was tested in short-
distance races, in the US the key criteria was convenience. This was assessed in long-distance races
and other competitions. The public in the US perceived the automobile as an everyday object

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replacing the horse-based transportation in the cities. In Europe, in contrast, the automobile was a
leisure object useful for an adventurous trip to the countryside.
The first automobiles in the US were propelled by steam engines. The well-known
technology used for railways was reduced in size and integrated into cars. The speed of the steam
cars was indisputable; they held almost all speed records in comparison to other engine powers.
The distance one could travel without having to refuel was large, too. The steam engine needed
water to run, which was available almost everywhere. It could be fueled by almost everything
burnable, for example coal, wood, or gas. The most common fuel was Kerosene. The downside of
the steam car was their heavy weight, which made it complex to maneuver them. Moreover, the
public disliked the steam car due to the polluting emissions and the risk of boiler explosions. The
strongest disadvantage was, however, that it took more than 30 minutes to warm-up the boiler,
which was needed to start the engine. These problems depressed the demand for this type of cars.
Nonetheless, a few manufactures were able to sell them to wealthy individuals.
Compared with the steam engine, internal combustion was a much younger technology. Not
only did engineers have less experience with the gas engine, it was also technically the most
complex. The engine was often unreliable, smelly, and loud. The distances and speed were lower
than with the steam cars, but still quite satisfactory. A continuous problem for early internal
combustion vehicles was the quality of fuel, which led to a number of technical problems reaching
from a simple breakdown of the engine to fire or even explosion. The public image of gas cars was
mixed. The noise and emissions were often criticized, while the simplicity of driving the cars was
praised. A large concern for both manufactures and drivers was an ongoing legal dispute over the
Selden patent. The patent, originally filed in 1879, was on manufacturing internal combustion
automobiles and allowed the holder to license the technology needed for gas automobile
production. The legal battle over the patent created insecurities for manufacturers and consumers.
To reduce the risk associated with the patent and free themselves from the technical problems with
the cars, manufacturers of gas cars often sold their cars directly to wealthy individuals.
The third technology used to propel automobiles was the electric engine. Electric
automobiles had by far the best public image. They were silent and emission free. The risk of fire
and explosion was close to zero. Electric vehicles were comparatively slow and had only a limited
range, yet their functionality was ideal for inner city traffic. Compared to the steam and gas
automobiles, electric cars were also the easiest to drive. A problem at the time was the battery
technology. There were different battery types available, with ranges of around 25 to 50 miles at a
speed of 13 mph. However, they needed to be maintained carefully. Similar to modern batteries,
emptying them fully as well as charging them only for short periods and with unsteady voltage
increased the attrition and reduced the battery capacity. Seeing how the electric tram has replaced
horse-drawn alternatives, most people expected the same would happen to the horse carriages.
While some electric car manufacturers sold the vehicles directly to customers, others developed a
rent-based model to free customers from the charging practice.

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The Long Birth of the Electric Car Industry
In 1894, the two engineers and former wainwrights (makers of wagons and carts) Henry Morris and
Pedro Salom from Philadelphia constructed experimental electric vehicles. They were fascinated by
the idea of replacing horses, as the primary propeller of passenger vehicles, with electric engines.
Their original business idea was to break with the tradition of horse-based transportation and sell
electric vehicles directly to consumers. After two years of ongoing experiments, they created their
first fully-functioning electric automobile, the ‘Electrobat’ (Exhibit 3). In 1896, the two engineers
founded the ‘Electric Carriage & Wagon Company’. Only months later, the ‘Electric Storage
Company’ (ESB), the supplier for the vehicles’ batteries and largest manufacturer of Chloride-
Manchester acid batteries in the US, took over control of Morris and Salom’s company and moved
it to New York. The ESB management proposed a new vision for the company. In line with the
traditions of the industry, the company wanted to offer a taxi and chauffeur service with electric
vehicles. For this vision, New York and especially Manhattan with its dense population, wealthy
individuals, and strong demand for individual transportation, was the ideal market.
After one year of testing and revising operations and the business model, the cab service
with electric vehicles was introduced in mid-March 1897. The pricing model was comparable to
horse cabs. The first two miles cost $1 each; all following miles $0.50. If the vehicle (with driver) was
rented for one or more days, the daily rate was $15. Vehicles would only be rented out with a
competent and trained driver, as the driver was the company’s face to the customer. Most of the
customers would book the electric cabs by phone. On special occasions, such as theater or movie
shows, concerts, large meetings, and conferences, the dispatchers sent out cabs to satisfy
spontaneous demand. To market the new cab service, company management proposed the service
directly to the receptions of selected theaters, hotels, and other places and institutions with well-
heeled clients. In addition, newspaper and magazine ads were placed. However, the marketing
activities were soon downsized as the demand for the electric vehicles exceeded the supply, and
the dispatchers had to refuse customers on a daily basis. The company had two different types of
customers: business clients, mainly lawyers and doctors calling the taxis to visit their clients and
patients, and wealthy private customers, who wanted to go to and return from cultural and social
events. The two customer segments overlapped substantially, even though long-term rental was
usually only demanded by business clients.
In contrast to horse cabs, which waited at a number of hack stands all around the city, the
company’s business model was station-based. The first small station was located at a central street
in Manhattan. It had the capacity to store 20 vehicles and charge the same amount of batteries. The
total fleet consisted of 12 electric vehicles from which 10 were always on duty, while the remaining
two were being maintained. Batteries were not charged while in the vehicles, even though this was
technically possible. Instead, the staff exchanged discharged batteries with fully loaded ones. This
approach required 1.5 batteries per vehicle. At start, the staff consisted of six technical and
managerial employees. The production of the vehicles was handled by an external supplier. They
had narrow pneumatic tires, spooked wheels, and a heavy chassis derived from the ‘Electrobats’.

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Two electric engines propelled the vehicle. A massive, 800 pound ESB’s Chloride-Manchester acid
battery was used, which allowed for a maximum of 20 miles at an average speed of 8 mph. The
electric vehicles were very simple to drive. This allowed the company to hire cabmen as drivers. Yet
the company was very selective whom it hired because friendly, reliable, and competent drivers
were part of the customer expectations. The drivers, as all other staff of the EVC, were paid on a
per-hour basis.
The first six months of the operations were a huge success. The 12 cabs performed 4,765
trips with a total of 14,459 miles. Only 40 breakdowns occurred during that time, which was
remarkably low for early automobiles. The cabs covered around 11 miles per day. As two-thirds of
the miles were paid miles (dead miles were the ones returning to station without a customer), each
cab generated a revenue of approximately forty cents per mile. This was enough to be operationally
profitable after only 18 weeks. The management was very proud of these results as they met their
early goals and offered a viable alternative to horse cabs.

The Birth of the Electric Vehicle Company

Given this early success, the management developed a robust expansion strategy. In a first step,
then CEO Isaac L. Rice acquired a small electric cab company in New Jersey. He changed the name
of the new conglomerate into the ‘Electric Vehicle Company’ (EVC). At the six-month anniversary of
the New York operations, the CEO proposed expanding the fleet to 100 electric cabs. At the time,
this seemed insane. In 1897, the entire national production of automobiles was around 50 vehicles.
To reach this ambitious goal, the EVC management first tried to find a number of car manufacturers.
Even though the efforts played out well and EVC management was able to find a number of
suppliers, this came at a large cost. It was impossible to standardize the production or even all
technical parts of the vehicles. This resulted in a situation, in which cars coming from one supplier’s
batch were very similar yet not the same. Across different batches, however, technical differences
were substantial. Even though these growing pains continued, the EVC was able to expand its fleet
to 200 cars in 1899.
The fleet expansion required a new central station for battery exchange and maintenance,
which was opened at 1684 Broadway. At the new station, technical personnel could maintain 100
vehicles and charge 150 batteries simultaneously. In contrast to electric cab companies in London
and Paris, the EVC decided to purchase the electric energy from Edison Electric, instead of producing
the energy itself. The electricity was, as typical for Edison Electric, direct current. Edison’s famous
opponent, Nikola Tesla, however proposed alternating current; a technology that is more complex
to run but is more secure and reliable.
This was not only less capital extensive to setup, it also came with lower operating costs.
However, the electric network was no yet very stable and fluctuations in voltage occurred on a
regular basis. Nonetheless, the exchange time for batteries at the new station was reduced to 75
seconds per vehicle.
Over the first years it turned out that the electric cabs were better suited than horse cabs in
difficult weather conditions, such as snow or heavy rain. Their stronger engines and the design of

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the tires avoided spinning and the heavy weight of the cars kept them on the road. In snowstorms,
the horse-based carriages could not operate and forwarded their clients to the EVC. Customers were
generally happy with EVC’s services and especially liked the fair pricing structure and the novelty
that came with electric vehicles. Another benefit was that the electric cabs did not have the odors
horses produced.
The EVC had some operational challenges as well. A significant amount of cabs was always
under maintenance due to a combination of little manpower on technical staff and missing
exchange parts. Another challenge were the tires. The pneumatic tires, developed for occasional
use with light vehicles such as bicycles, could not handle the heavy usage in terms of both vehicle
weight and mileage. In response, the EVC started to test new types of pneumatic and solid tires. The
battery was another source of concern. The battery lifespan was even lower than expected.
However, new battery technologies were developed at a stunning pace and EVC management was
convinced that the newer generations of batteries would solve the issue. Nevertheless, the longer
the operations in New York continued, the more the challenges around the production of the
vehicles trickled down to the daily operations.
The two different renting options for customers were used on a very even basis. Around 52%
of cabs were in taxi service, while the remaining 48% were on daily or more long-term lease. Despite
the challenges, revenues and profits per car were increasing. The fleet generated approximately
$11.25 per vehicle per day.

Scaling EVC
Impressed by the growing revenues, the strong demand, and the massive expansion of the fleet a
new interested party approached the EVC: William C. Whitney and his Whitney-Philadelphia
syndicate. Whitney was a famous financier and mobility entrepreneur on the US East Coast. He
controlled most of the electric tram companies in New England, a number of horse cab companies,
and a few bicycles manufacturers. The syndicate also had plans to vertically integrate and take over
electricity companies, such as New York Edison, to have full control over energy supply. On his
mission to dominate urban mobility and develop an integrated electric system of transportation,
Whitney took over the majority of the EVC shares in 1899. He was well aware of EVC’s production
issues, which he believed were caused by the fact that EVC had too little control over contractual
vehicle manufacturers. To solve this issue, he bought a number of electric car manufacturers and
battery producers. The production processes were still unique to each manufacturer, which made
it possible to integrate technical improvements in specific models, as needed.
Whitney wanted to scale EVC’s operations not only within New York, but also to other major
US cities. In the following years, EVC opened branches in Jersey City, Boston, and Chicago. To
provide cabs for all these cities, Whitney wanted to increase EVC’s fleet to around 2,000 electric
vehicles. The business model in the three new branches was exactly the same as in New York. EVC
created a station at a central location in the city center and rented the cars out on a short-term and
long-term basis. Meanwhile, EVC opened smaller supplementary charging stations in New York at
places with high demand, such as the Hotel Astor or Café Martin. In Boston, the local management

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started to build charging stations in concentric circles around the city center to allow for longer
distance trips into the outskirts of the city.
Initially, EVC and electric vehicles in general had a remarkable positive public image. Driving
with an electric car was not only a matter of excitement for the customers, it also signaled
modernism, wealth, and a positive attitude towards technological progress. In the early days of the
company, newspapers were full of excited and enthusiastic articles describing EVC and electric
vehicles as the future of urban transportation. However, after the take-over by Whitney this
changed. To fulfil his dream of a fully integrated mobility system, Whitney and his syndicate not only
engaged in taking-over a number of other companies, he also started building a trust by vertically
and horizontally integrating business processes. He wanted full control over both production and
consumption. Leveraging his political connections, Whitney bought all automobile cab licenses in
the cities of the West Coast, effectively monopolizing the cab market for automobiles. To control
vehicle production, he eventually bought the Selden patent. He planned to shut down all gas car
manufactures, once the legal status of the patent was confirmed. Driven by negative newspaper
and magazine articles on the attempt to create a monopoly, the public started to lose its trust in
EVC and the public opinion about the company deteriorated.

The Collapse
The new branches in Chicago, Boston, and New Jersey had massive operational problems from the
start. The demand for electric cabs was still higher than the supply the EVC could deliver. However,
as these cities were less dense compared to New York, distances were far longer, and the attrition
of the cars respectively higher. The ambitious scaling of the batch production decreased the quality
of the vehicles even further and some of the automobiles arriving from the production site went
directly to repair. The management and operations personnel in the new cities were poorly trained
resulting in irregular maintenance of the vehicles and quick-charging practices of the batteries.
These challenges resulted in low revenue and a large deficit. To get the company back on track, the
management in New York decided to implement a new payment scheme for drivers. In the current
model of per-hour salary, the drivers could easily embezzle money as they could report shorter or
less trips and keep some of the money they earned. To stop this practice, the management decided
to reduce the per hour salary by 50%. Instead, drivers now got a share of their revenue.
There were also challenges unique to each city. In New Jersey for instance, the local energy
provider was unable to deliver constant supply. Often there was no voltage at all, which made it
incredibly hard to plan for charging hours. If the power plant delivered, the voltage was irregular. In
Boston the demand fluctuated. While during the summer tourists were coming to the city
demanding more cabs than EVC could provide, the demand in winter was low and EVC cabs were
waiting at the station for calls that never came. In Chicago, the relationship between drivers and
management was tenser than elsewhere. After the introduction of the new payment scheme, the
drivers went on strike. They argued that as they had neither influence on how many trips they make,
nor how long these trips were, the reward system was unfair. From their point of view, the
participation scheme shifted significant risk and income insecurity to them.

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 Confronted by these challenges, EVC management decided to close down all three branches
in 1901. The management was well aware that the money they lost in these branches was already
affecting the stability of the entire company. In New York, the last remaining market in which EVC
operated, the total number of vehicles had reached 650. Even though a few smaller charging
stations had been opened, they were no longer sufficient to charge all vehicles and their batteries
simultaneously. Instead the management instructed their workers to quickly charge the vehicles in-
between trips. However, the longer the batteries were in use, the more they caused problems. It
not only took longer and longer to charge the batteries, it also seemed that their capacity decreased.
Seeing these problems, the EVC management decided to buy new sets of batteries on a more
regular basis. This decision ensured quality but was also very expensive. In late 1901, the company
began to experiment with a new type of battery. Exide batteries, designed especially for mobility
applications, promised less weight and at the same time a higher energy density. At the time, this
was technologically better but not the best option. The Exide batteries still suffered from high
attrition when fully emptied, quick charged, or loaded with volatile voltage. The best technology at
that time was the alkaline battery. They were more robust than the models used by the EVC and
came in lower weight and with higher energy density. However, these battery types were not yet
market-ready. The management knew that they would need a few more years until this was the
case. Another continual problem of the EVC were the tires. Until the early years of the 20th century,
EVC had tested no less than 24 different types of pneumatic and solid tires from 8 different
manufacturers. None of them were suitable in the long-run for the high weight of the vehicles, 60%
of which the battery accounted for, and the road conditions in New York.
Meade was now well aware of the EVC’s recent struggles. It was late in the evening and he
wanted to continue his investigations tomorrow. He opened his notebook and jotted down some
questions he wanted to think about during his cab ride home: Was he fooling himself in thinking
that this business opportunity was potentially huge? And had they done the best job possible when
designing the business model for EVC? Or was it time to reconsider their options?

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Appendix

Exhibit 1: Typical Horse-Less Carriage from the late 19th century

Source: https://searcharchives.vancouver.ca/first-horseless-carriage-ever-seen-on-streets-of-vancouver-owned-by-late-w-h-armstrong

Exhibit 2: Benz Motorwagen from 1886

Source: https://de.wikipedia.org/wiki/Benz_Patent-Motorwagen_Nummer_1

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 Exhibit 3: Electrobat built my Morris and Salom

Source: https://www.theatlantic.com/technology/archive/2011/03/the-electric-taxi-company-you-could-have-called-in-
1900/72481/

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