If we go with the car analogy, then the gas tank would become smaller with age, but also the fuel line which feeds the engine becomes smaller with age. So overall capacity is reduced, but in addition to that, if you try to floor it when the tank is at 40%, the engine will stall.

If you had only puttered around town (putting only a light load on the engine), you could have fully used the remaining 40%. So the gas tank does still have 40% capacity remaining at that point, it just can't deliver surges like it used it.

I guess we should take a look at how the electric car makers do it then? They have this problem and deal with it now. Not having any experience with electric cars, I can't speak to how it's done.

EVs have a lot of smaller cells packed together and there is a heavy and capable Battery Management System attached to that, along with heating and cooling elements.

AFAIK, most of the battery degradation on phones can be attributed to heat and suboptimal operating temperatures. An EV will heat up / cool down the battery, treat each cell as an independent unit during cycles etc. They will degrade a lot slower compared to phones. Most EVs even after years of use have decent battery performance and some manufacturers (like Tesla and BMW) even go with 8-10 year battery warranty programs.

I think they don't see much abuse like the tiny phone batteries.

But how do they display remaining battery life? %? Range in distance?

Batteries have a predictable discharge cycle. They're fully charged when their output voltage stops increasing and as they discharge the output voltage slowly falls until it reaches a certain threshold where the output voltage is no longer enough to power the device. That cut off voltage is a fixed number. The part that varies is the time it takes to go from fully charged to the cut off voltage.

As a battery degrades, the time is reduced.

Regardless of what the initial voltage is, a plot can be drawn based on measurements of the voltage to see how quickly it's approaching the cut off voltage.

So the battery capacity should really be where the voltage is relative to the last peak when fully charged compared to the cut off voltage.

If Apple is reporting a battery at 40% capacity when it cuts off then they're fudging their numbers.

Now, I know that different battery chemistries have different discharge profiles and this waters down my point a bit, but hear me out.

I started buying LED flashlights when the first couple of designs with high efficiency voltage regulator circuits showed up. The one my buddy had was only fit for a reading light for the last couple of hours of use.

People used to understand that things got dimmer or slower when the battery was almost dead. Due to circuitry these flashlights kept going even though the battery voltage had dropped below the shutoff voltage for an LED. Shouldn’t we maybe have built on that familiarity? Couldn’t we still?

Drawing power causes voltage drops; I suspect what they're saying is that a degraded battery under heavy load will momentarily drop from 40% to under cutoff threshold.

Large voltage drops under load are typically an indication of a bad cell or battery. You could argue this is beneficial to the customer but Apple is hiding the fact that they're doing this. Why?

I recall when they switched to non-replaceable batteries in MacBooks, they boasted how their battery lives were the best and would last x years. Is this how they did it?

There is another problem, at least I had it with my android phone, is that percentage is averaged on usage pattern, so it would show me I have 20% battery and then I make one 5 min call and it is suddenly 2% and critically low, simply because I usually don't make calls late evening and phone sits in idle.

I don't think you can have such a number, as it hinges so heavily on unknowable future usage and environmental factors.

And frankly now that sudden shutdown isn't a thing, I don't think it matters much. Apple just has to communicate the situation better when processor throttling reaches severe states.

Not having an electric car, does anyone know what Teslas, Volts and Leafs do?

Those cars have the extra problem of having batteries out in the cold too.