A pseudo two-dimensional (P2D) electro-chemical lithium-ion battery model is presented in this paper to study the capacity fade under cyclic charge-discharge conditions. The Newman model [1,2] has been modified to include a continuous solvent reduction reaction responsible for the capacity fade and power fade. The temperature variation inside the cell is accurately predicted using a distributed thermal model coupled with the internal chemical heat generation. The model is further improved by linking the porosity variation with the electrolyte partial molar concentration, thereby proving a stronger coupling between the battery performance and the chemical properties of electrolyte. The solid electrolyte interface (SEI) layer growth is estimated for different cut-off voltages and charging current rates. The results show that the convective heat transfer coefficient as well as the porosity variation influences the SEI layer growth and the battery life significantly. The choice of an electrolyte decides the conductivity and partial molar concentration, which is found to have a strong influence on the capacity fade of the battery. The present battery model integrates all essential electro-chemical processes inside a lithium-ion battery under a strong implicit algorithm, proving a useful tool for computationally fast battery monitoring system.