The properties and chemical composition of the solid-electrolyte-interface (SEI) layer have been a subject of intense research due to their importance in the safety, capacity fade, and cycle life of Li-ion secondary batteries. In this paper, Kinetic Monte Carlo (KMC) simulation is applied to explore the formation of the passive SEI layer in the tangential direction of the lithium-ion intercalation in a graphite anode. The simulations are consistent with experimental observations that the active surface coverage decreases with time slowly in the initial stages of the battery operation, and then decreases rapidly. The effects of operating parameters such as the exchange current density, charging voltage, and temperature on the formation of the passive SEI layer are investigated. The active surface coverage at the end of each charging cycle remained constant for more cycles at higher temperature, but was lower at later cycles. The temperature that optimizes the active surface in a lithium-ion battery at cycle 1 can result in much lower active surface for most of the battery life. The potential for coupling the KMC model with porous electrode theory-continuum models is discussed to arrive at a multiscale model for understanding, analyzing, and minimizing capacity fade. (C) 2011 The Electrochemical Society. [DOI: 10.1149/1.3548526]