Bicycles were all the rage in Britain during the 1890s. In fact, there was even a term for it: the bicycle bubble. It’s easy to see why bikes became so popular so quickly – they were new and exciting form of transportation that was widely heralded a healthy, accessible and environmentally friendly alternative to horses. But, as they invariably do, the bubble burst, leaving Britain’s booming bicycle business in tatters.
The British bicycle boom of the 1890s is an intriguing chapter in the country’s history and a useful case study in the phenomenon of boom and bust market cycles (no pun intended). Some suggest that we might be seeing a similar phenomenon playing out with electric vehicles (EVs), which have been hyped as socially and environmentally revolutionary in terms that echo the bicycle boom. Like the booming 1890s bike industry, today’s EV market has also seen a surge in startup companies, speculative investment and soaring stock prices.
Britain is gripped by a biking boom
Frances Benjamin Johnston, full-length self-portrait dressed as a man with false moustache, posed with bicycle (left) / A couple seated on an 1886 Coventry Rotary Quadracycle for two (right)
Image Credit: Frances Benjamin Johnston, Library of Congress (left) / [1], Public domain, via Wikimedia Commons
The 1890s bicycle bubble began in 1896 when the country was swept up in a wave of enthusiasm for bicycles, which were being heralded as a revolutionary new technology and must-have lifestyle accessory. Demand went through the roof and the market rapidly inflated. Unsurprisingly, investors responded to this surge of enthusiasm and the share prices of British bicycle companies tripled in the space of months.
But the bicycle boom proved to be unsustainable and, following a flood of low-cost American bicycles hitting the British market, many of the companies that had sprung up and attracted substantial investment at the height of the bubble went out of business just as quickly. In retrospect, the inevitable arrival of oversupply and the consequent driving down of product prices in Britain’s inflated bicycle market should have been more widely anticipated. But, as is invariably the case with economic bubbles, the market responded irrationally to a hyped product.
By 1901, the British bicycle trade was devastated: at least 40 publicly traded bicycle companies had gone bankrupt and plenty more followed over the next few years. Ultimately, 70% of the businesses that had played a part in the bicycle bubble ended up folding or leaving the sector.
Boom and bust
The British bicycle bubble is far from an isolated case. Indeed, the boom and bust cycle is widely regarded as a key characteristic of capitalist economies and was first anticipated by Karl Marx in the 19th century. In some respects, it is as much a consequence of investor psychology as it is economic principles – during the boom phase of such cycles investor sentiment is buoyant and the market grows rapidly. The bust phase is a rapid economic contraction that tends to result in businesses failing and investors losing money.
Bubbles typically refer to a more specific set of circumstances – a particular stock, asset or, as with of the bicycle bubble, sector being overvalued as the result of a speculative price surge that doesn’t reflect the intrinsic value of the asset. They tend to depend on a widespread suspension of disbelief.
The most famous example of this phenomenon in recent history is probably the dot-com bubble of the late 1990s, which saw a rapid rise in US technology stock equity valuations fuelled by heavy investment in Internet-based companies.
The dot-com bubble was inflated by an abundance of faddish investing and funding for technology startups. Much like the over-excitable bicycle investors in 1890s Britain, dot-com investors were seduced by the overhyped promise of a shiny new sector touting transformative technologies. A recklessly speculative atmosphere fed by easy capital and overconfidence took hold.
Inevitably, a market reckoning arrived in 2001 when, at the market’s peak value, several leading tech companies placed massive sell orders on their stocks. This sparked a surge of panic selling and the beginning of a plummeting downturn. By the end of the year, most of the publicly traded dot-com companies had collapsed, taking trillions of dollars of investment capital with them.
Is the electric vehicle boom set to repeat history?
Electric charging station in Seattle, 1973
Image Credit: Seattle Municipal Archives, CC BY 2.0
Just as bicycles were touted as the future of transportation, electric vehicles (EVs) are now being hailed with evangelical zeal as a transformative technology and attracting lots of speculative investment.
It remains to be seen whether this EV bubble will also eventually burst but it’s easy to see why comparisons are being made. There are already indications that the EV market has been valued unrealistically and the first quarter of 2022 saw sharp stock price falls across the EV industry. The stock price of Rivian, one of the most promising EV companies, plummeted 75% in five months following its public offering in November 2021, when it was valued higher than Ford and GM.
As with the 1890s bicycle boom, a lot of EV companies have sprung up very quickly and experts predict that many of them are likely to fail when the bubble pops. This might sound like bad news for the burgeoning EV industry, but the bicycle bubble provides another, more optimistic lesson from history.
The short-term fallout after the bubble burst wasn’t pretty – investors lost money and companies went bankrupt – but the product itself was a genuinely transformative success story. The bicycle may have been overhyped in 1890s Britain, but it has proved to be anything but an overnight sensation; perhaps a similar journey awaits the electric vehicle.
