Plug-in hybrid electric vehicles (PHEVs) capable of drawing tractive energy from the electric grid represent an energy efficient alternative to conventional vehicles. After several thousand charge depleting cycles, PHEV traction batteries can be subject to energy and power degradation which has the potential to affect vehicle performance and efficiency. This study seeks to understand the effect of battery degradation and the need for battery replacement in PHEVs through the experimental measurement of lithium ion battery lifetime under PHEV-type driving and charging conditions. The dynamic characteristics of the battery performance over its lifetime are then input into a vehicle performance and fuel consumption simulation to understand these effects as a function of battery degradation state, and as a function of vehicle control strategy. The results of this study show that active management of PHEV battery degradation by the vehicle control system can improve PHEV performance and fuel consumption relative to a more passive baseline. Simulation of the performance of the PHEV throughout its battery lifetime shows that battery replacement will be neither economically incentivized nor necessary to maintain performance in PHEVs. These results have important implications for techno-economic evaluations of PHEVs which have treated battery replacement and its costs with inconsistency.