It's a chemical reaction - there's a gradual degradation in the anode/cathode as a reaction with the electrolyte. There's environmental factors to it too - temperature has an effect, and if you can control the temperature over time, you can reduce the effect. This lecture (1h, 13m) goes into it in detail, including how it can be prevented, ways of testing, and more: [this video]
Detailed lecture on why lithium batteries degrade, prevention and testing
Battery science is fascinating. Here's in an-depth look at degredation: [this video] The speaker (Jeff Dahn -- he now works with Tesla) pioneered a faster way to tell how fast a battery will degrade (which means you can iterate your design faster!)
Are you sure? Super fast discharge and charge cycles are only part of the story. I have seen that the Nissan Leaf battery problems stem from heat, choosing a poor mixture of electrolyte and additives in the Lithium. Why do Lithium batteries die? By Professor Jeff Dahn - WIN Seminar Series[0] [0] [this video]
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