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Yes, the batteries degrade, though not nearly as quickly as smartphone batteries. That’s for a couple of reasons: the pack is temperature controlled, and it’s rarely being charged to full and discharged all the way.
As for cost? Well, they are expensive. But you’re seeing a fair number of Model Ss passing the 5 year/100,000 mile mark with only moderate degradation. In any reasonable use case they should last the life of the car.
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