**1. Introduction**

In Greek mythology, the hydra was a nine-headed monster that terrorized the local populace. When one of the hydra's heads was cut off, two grew back in its place. This evolving menace was ultimately killed by Heracles and his nephew Iolaus with Heracles severing each head and Iolaus cauterizing the wound, preventing the regrowth of additional heads.

In modern times, a problem described as a hydra is one which is multifaceted or continually evolving. The lithium ion supply chain has some similarities with the hydra in that there are multiple businesses (mining, refining, cathode and anode production, battery cell and pack production) which are all different in terms of operational complexity and funding needs. **Figure 1** demonstrates a high-level overview of the lithium supply chain.

Despite the complexity, the lithium ion supply chain is positioned for a strong growth based on the twin tailwinds of government requirements for decarbonization and falling lithium ion battery costs in the next decade. By the author's estimates, should electric vehicles (EVs) become 10% of global autosales later this decade, this would require three times more lithium than is currently produced

**Figure 1.**

*A high level view of the lithium supply chain today. Source: House Mountain Partners, LLC.*

globally today, given certain assumptions on battery size in kilowatt-hours (kWh) and battery chemistry. This tripling of demand ignores the growth in other sectors that use lithium such as pharmaceuticals or glass and ceramics.

However, the trajectory of this rather sunny scenario has recently been called into question. The US-China trade war and simultaneous supply and demand shock of coronavirus disease 2019 (COVID-19) are forcing investors and companies traditional sources of capital to feed the growth of the supply chain—to pause and scrutinize capital allocation decisions. The entire industry is just beginning to understand the implications of these shocks, and this evolution can cause capital commitments to freeze or vanish altogether. In the past year alone, major lithium producers Albemarle, Sociedad Química y Minera de Chile (SQM), Livent, Ganfeng Lithium, and Tianqi Lithium (known collectively as "the Big Five" as they produce the majority of global lithium supply) have halted or slowed production expansion plans due to low lithium prices and softer than expected demand. The macroshocks referred to above have also hurt the development-stage mining companies with high-profile failures becoming more frequent.

With its multiple subsectors (mining, refining, cathode and anode production, and separator production, battery production, automotive), the comparison of the lithium ion supply chain to the hydra is apt.

The winds of change have dawned on one head of the hydra—the global automotive business. Mary Barra, *c*hief *e*xecutive *o*fficer (CEO) of General Motors (GM) referred to this volatility, stating in 2017:

*I have no doubt that the automotive industry will change more in the next five to 10 years than it has in the last 50. The convergence of connectivity, vehicle electrification, and evolving customer needs demand new solutions [1].*

In an environment where equity investors view results on a quarterly basis, lithium company CEOs and chief financial officers (CFOs) are under immense pressure to deliver immediate returns to shareholders while at the same time ensuring that they maintain or increase market share by investing in the future and managing a lag in recouping those costs in the future.

This paper discusses the upstream lithium ion supply chain through the lens of capital allocation. The various subsectors of the business can be thought of as various heads of the ancient hydra—unwieldy, growing, and hungry (in this case for financial capital). I will discuss why governments around the world are intent on decarbonizing the transport sector, the importance of investment during different phases of the capital cycle, and the traditional challenges associated with capital allocation.

*Taming the Hydra: Funding the Lithium Ion Supply Chain in an Era of Unprecedented Volatility DOI: http://dx.doi.org/10.5772/intechopen.92891*

Trade war dynamics and COVID-19 have shocked the global economy and given investors pause in terms of how, when, and where to invest. The lithium ion supply chain is not immune here, but nobody disputes that in 10 years' time, this supply chain will be larger and more critical to the global economy than it is today. What is debatable is what the supply chain will look like and how to structure and deploy the enormous sums necessary for growth.
