The rapid insertion and extraction of Li ions from a cathode material is imperative for the functioning of a Li-ion battery. In many cathode materials such as LiCoO2, lithiation proceeds through solid-solution formation, whereas in other materials such as LiFePO4 lithiation/delithiation is accompanied by a phase transition between Li-rich and Li-poor phases. We demonstrate using scanning transmission X-ray microscopy (STXM) that in individual nanowires of layered V2O5, lithiation gradients observed on Li-ion intercalation arise from electron localization and local structural polarization. Electrons localized on the V2O5 framework couple to local structural distortions, giving rise to small polarons that serves as a bottleneck for further Li-ion insertion. The stabilization of this polaron impedes equilibration of charge density across the nanowire and gives rise to distinctive domains. The enhancement in charge/discharge rates for this material on nanostructuring can be attributed to circumventing challenges with charge transport from polaron formation.