Business Model Challenges, The Electric Vehicle Company
Business Model Challenges, The Electric Vehicle Company
Business Model Challenges, The Electric Vehicle Company
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CH R I S T I N A L U B I N S K I
CH R I S T O P H VI E B I G
I
n early 1904, Richard W. Meade assumed leadership of the “Electric Vehicle Company” (EVC), the
producer and operator of electric cabs in New York City (see Exhibit 1 and photo on this page for
pictures of their electric car).1 When the board asked him to step into the position, he felt honored
and blessed. EVC was not just another company. At the turn of the century, it was the largest
manufacturer of automobiles in North America and at the same time the largest operator of electric
vehicles.2 At its peak in 1901, the fleet contained approximately 850 electric vehicles and an impressive
maintenance infrastructure.3 This included the world’s largest charging station for electric vehicles on
Eighth Avenue in New York with space for 1,000 vehicles4 and a number of smaller stations all around
Manhattan.5 Although the electric cab company was operationally profitable in New York,6 the last five
years had been a constant struggle and Meade knew he had been hired to turn the company around.
Just a few years earlier, the electric car dominated the automotive market in the US and EVC was the
leading producer.7 The company served clients not only in New York, but also in Boston, Atlantic City,
and Chicago and had ambitious plans to expand even further. However, operations in the latter cities
had been a catastrophe, and after one year, Meade’s predecessor took the hard decision to shut them
down.8 Now, it seemed that the operational problems spilled over to New York.
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. As their homes were often located at great
distance from their workplaces, commuting became more popular. In addition, a new middle class,
called “the bourgeoise,” emerged. This social class consisted of wealthy traders, professionals like
doctors, teachers, lawyers, clerks, and other occupational groups with medium to high social status.
The continuously growing cities made it necessary for both factory workers and the bourgeoise to bridge
ever larger distances.11
Re-imagining Mobility
The first important innovation in the mobility sector of the 19th century was the steam powered
train.12 In 1825, the first public steam-powered railway line opened between Stockton and Darlington
in Great Britain.13 Even though the line covered only a distance of less than 9 miles, 14 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 about 193 thousand
miles,15 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 36mph.16 At
the end of the century, they could reach up to 92.3 mph. 17 The scale, distance, and speed were
unreachable for any animal-based mode of transportation.
Christina Lubinski, Clinical Professor of Entrepreneurship at the USC Marshall School of Business, and Christoph Viebig, a
PhD candidate at Copenhagen Business School, prepared this case. This case was developed from published sources. Cases
are developed solely as the basis for class discussion and are not intended to serve as endorsements, sources of primary data
or illustrations of effective or ineffective management.
Copyright © 2020 Lloyd Greif Center for Entrepreneurial Studies, Marshall School of Business, University of Southern
California. For information about Greif Center cases, please contact us at [email protected]. This publication
may not be digitized, photocopied, or otherwise reproduced, posted or transmitted without the permission of The Lloyd Greif
Center for Entrepreneurial Studies.
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Business Model Challenges: The Electric Vehicle Company SCG-566
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 1804, 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. 18
Another form of inner-city mass transportation 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 late 1920s.19
While streetcars were bound to rails and transported people mainly on large roads with high
demands for mobility, demand for door-to-door and “last-mile” mobility was satisfied by horse-
carriages.20 Customers could hail horse cabs driving around the streets or catch them at 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 order them over the phone. Some signed a long-term lease agreement with a cab company
guaranteeing them a cab with driver whenever needed.21 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 subsequent decades, 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 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 depending on the quality of roads, the weather conditions and the flatness of the geography.
Furthermore, it was seen as a mode of transportation for leisure rather than for covering daily needs.22
Throughout the 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
horse carriages in every way, except for the lack of horses (see Exhibit 3). 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 1886 patented the first
gas propelled automobile (see Exhibit 4 for Benz Motorwagen), 23 there is evidence for earlier
automobiles.24 Most of these early models were propelled by steam and electric engines. The early
development of the automobile was very experimental. It took until the last decade of the century for
entrepreneurs to match the technology to an adequate business model.
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SCG-566 Business Model Challenges: The Electric Vehicle Company
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 and drivers could travel a large
distance without having to refuel. 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. On the downside, steam cars were heavy in 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, before starting the engine. These problems depressed the demand for this type
of car. 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 issues reaching from a simple breakdown of the
engine to fire or even explosion. The public had mixed feelings towards gas cars: they were noisy and
polluting, but quite easy to drive.26 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.27 The legal battle over the patent created uncertainty 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
a good 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. The battery technology represented the major problem at the time. 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 wear and tear and reduced the battery
capacity.28 Seeing how the electric tram had replaced horse-drawn alternatives, most people expected
the same to 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.29
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Business Model Challenges: The Electric Vehicle Company SCG-566
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. 33 The
first two miles cost $1 each (equal to a purchasing power of $30.17 in 2019); all following miles $0.50
each.34 If the vehicle (with driver) was rented for one or more days, the daily rate was $12. 35 Vehicles
would only be rented out with a competent and trained driver, as the driver was the company’s face to
the customer.36 Most of the customers would book the electric cabs by phone.37 On special occasions,
such as theater or movie shows, concerts, large meetings, and conferences, the dispatchers sent out
cabs to satisfy spontaneous demand.38 To market the new cab service, the company management
proposed the service directly to the receptions of selected theaters, hotels, and other places with well-
heeled clients. In addition, they placed ads in newspapers and magazines. However, when the demand
for the electric vehicles exceeded the supply, and the dispatchers had to refuse customers on a daily
basis and the marketing activities were soon downsized.39 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 requested 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.40 The first small station was located at a central street in Manhattan.
It had the capacity to hold 20 vehicles and charge the same amount of batteries. The total fleet consisted
of 12 electric vehicles, 10 of which were always on duty, while the remaining two were being maintained.
Batteries were not charged while in the vehicles, even though this was technically feasible. Instead, the
staff exchanged discharged batteries with fully loaded ones.41 This approach required 48 battery cells
pooled into four battery blocks per vehicle. 42 The staff consisted of six technical and managerial
employees.43 The production of the vehicles was handled by an external supplier.44 They had narrow
pneumatic tires, spooked wheels, and a heavy chassis derived from the “Electrobat”. Two electric
engines propelled the vehicle. A massive, 800-pound ESB’s Chloride-Manchester acid battery allowed
for a maximum of 20 miles at an average speed of 8 mph. 45 The electric vehicles were very simple to
drive. This allowed the company to hire largely uneducated cabmen as drivers. Yet the company was
very selective whom it hired because friendly, reliable, and competent drivers were part of the customer
expectations.46 The drivers, as all other staff of the EVC, were paid on a per-day basis.47
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.48 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
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SCG-566 Business Model Challenges: The Electric Vehicle Company
of approximately forty cents per mile. This was enough to be operationally profitable after only 18
weeks.49 The management was very proud of these results as they met their early goals and provided a
viable alternative to horse cabs.
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.53 In contrast to electric cab companies in London and Paris, EVC
decided to purchase the electric energy from Edison Electric, instead of producing the energy itself.54
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 more secure
and reliable.
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.55 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 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 EVC.56 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– unlike horses – were odorless.57
EVC had some operational challenges. A significant number of cabs was always under maintenance
due to a combination of an undersized technical staff and missing spare 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, EVC started to
test new types of pneumatic and solid tires.58 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.59 Nevertheless, the longer the operations in New York continued, the more the challenges
around the production of the vehicles trickled down to 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.60 Despite the
challenges, revenues and profits per car were increasing. The fleet generated approximately $11.25 per
vehicle per day.61
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Business Model Challenges: The Electric Vehicle Company SCG-566
Scaling EVC
Impressed by the growing revenues, the strong demand, and the massive expansion of the fleet a
new interested party approached 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,62 Whitney took over the majority
of the EVC shares in 1899.63 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.64
Whitney wanted to scale EVC’s operations not only within New York, but also in other major US
cities. In the following years, EVC opened branches in Jersey City, Boston, and Chicago.65 To provide
cabs for all these cities, Whitney wanted to increase EVC’s fleet to around 2,000 electric vehicles.66 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.67 In Boston, the local management started to build
charging stations in concentric circles around the city center to allow for longer distance trips into the
outskirts of the city.68
Initially, EVC and electric vehicles in general had a remarkably 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 showed excitement and enthusiasm for EVC and described electric vehicles as the future
of urban transportation.69 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 manufacturers once the legal status of the patent
was confirmed.70 Driven by negative press coverage on the attempt to create a monopoly, the public
started to lose its trust in EVC. The public’s perception of the company deteriorated.
The Collapse
The new branches in Chicago, Boston, and Atlantic City had massive operational problems from the
start. The demand for electric cabs was still higher than the supply that EVC could deliver. However,
these cities were less dense than New York, distances were far longer, and the wear and tear 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.71
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.72 These challenges resulted
in low revenue and a large deficit.73 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 fewer trips and keep some of the
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SCG-566 Business Model Challenges: The Electric Vehicle Company
money they earned. To stop this practice, management decided to reduce the per hour salary by 50%.
Instead, drivers now got a share of the revenue they earned.74
There were also challenges unique to each location. 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 often
irregular.75 In Atlantic City 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. 76 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 made, nor how
long these trips were, the compensation system was unfair. From their point of view, the participation
scheme shifted significant risk and income insecurity to them.77
Confronted by these challenges, EVC management decided to close down all three branches in
1901.78 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 350. 79 Even though a few smaller charging stations had been
opened, they were no longer sufficient to charge all batteries simultaneously. Instead the management
instructed their workers to quickly charge the vehicles in-between trips.80 However, the longer the
batteries were in use, the more they caused problems. While it took increasingly longer to charge the
batteries, their capacity decreased.
In response, 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 for a higher energy density. At the time, this was a better option, but anything but optimal. The
Exide batteries still suffered from high wear and tear when fully emptied, quickly charged, or loaded
with volatile voltage. The best available technology at that time was the alkaline battery. Alkaline
batteries were more robust than the models used by the EVC and their higher energy density and lower
weight added to their potential appeal. However, these battery types did not seem market-ready yet.81
EVC management assumed they would need a few more years until this was the case. Finally, another
frequent problem were the tires. Until the early 20th century, EVC had tested no less than 20 different
types of pneumatic and solid tires from eight different manufacturers.82 None of them were, in the long-
run, suitable for the road conditions in New York and the weight of the vehicles. Around 40% of the
weight was caused by the battery itself.83
Meade was now caught up on EVC’s most recent struggles. It was late in the evening and he wanted
to continue his analysis tomorrow. He opened his notebook and jotted down some questions 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 EVC’s business? Or was it
time to reconsider their options?
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Business Model Challenges: The Electric Vehicle Company SCG-566
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SCG-566 Business Model Challenges: The Electric Vehicle Company
Exhibit 3: Historic European and American automobiles with gasoline, steam and electric
drive. Wood engravings, published in 1898.
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Business Model Challenges: The Electric Vehicle Company SCG-566
Exhibit 5: Photo of Henry G. Morris and Pedro G. Salom in their 1894 Electrobat
automobile, the first commercially produced electric automobile in the United States.
Source: David T. Wells, “The Growth of the Automobile Industry in America”, in: The Outing Magazine, Volume 51, issue 2 (Nov. 1907),
207-221, here: 210. Copy at: Wikicommons. https://commons.wikimedia.org/wiki/File:1894Electrobat.jpg
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SCG-566 Business Model Challenges: The Electric Vehicle Company
Exhibit 7: EVC Electric Taxicabs in 39th Street, Manhattan, New York City, 1898
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Business Model Challenges: The Electric Vehicle Company SCG-566
1 David A. Kirsch, The Electric Vehicle and the Burden of History (New Brunswick, N.J: Rutgers
University Press, 2000), 75.
2 Kirsch, 31.
3 Gijs Mom, The Electric Vehicle: Technology and Expectations in the Automobile Age, 1. paperback.
Routledge, 2000).
12 Mom, The Electric Vehicle, 7.
13 Maurice W Kirby, The Origins of Railway Enterprise: The Stockton and Darlington Railway, 1821-
2019, https://www.britannica.com/topic/Stockton-and-Darlington-Railway.
15 Edward A. Purcell, Litigation and Inequality: Federal Diversity Jurisdiction in Industrial America,
Buses and Bikes, 1st ed, Transportation and Society (New York, NY: Britannica Educational Pub. in
association with Rosen Educational Services, 2012).
20 Mom, The Electric Vehicle, 8.
21 Kirsch, The Electric Vehicle and the Burden of History, 80.
22 David V Herlihy, Bicycle: The History (New Haven, Conn.; London: Yale University Press, 2006).
23 Benz & Co, Fahrzeug mit Gasmotorbetrieb, Kaiserliches Patentamt 37435 (Berlin, filed January 29,
1990).
28 Flink.
29 Kirsch, The Electric Vehicle and the Burden of History, 32.
30 Mom, The Electric Vehicle, 79.
31 Kirsch, The Electric Vehicle and the Burden of History, 37.
32 Kirsch, 41.
33 Kirsch, 47.
34 Kirsch, 41.
35 Kirsch, 76.
36 Kirsch, 39–40.
37 Kirsch, 38.
38 Mom, The Electric Vehicle, 81.
39 Kirsch, The Electric Vehicle and the Burden of History, 45.
40 Mom, The Electric Vehicle, 80.
41 Kirsch, The Electric Vehicle and the Burden of History, 39.
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