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This paper presents a novel observer-based analytical redundancy for a steer-by-wire (SBW) system. An analytical redundancy methodology was utilized to reduce the total number of redundant road-wheel angle (RWA) sensors in a triply redundant RWA-based SBW system while maintaining a high level of reliability. A full-state observer was designed using the combined model of the vehicle and SBW system to estimate the vehicle-body sideslip angle. The steering angle was then estimated from the observed and measured states of the vehicle (body sideslip angle and yaw rate) as well as the current input to the SBW electric motor(s). A fault detection and isolation (FDI) algorithm was developed using a majority voting scheme, which was then used to detect faulty sensor(s) to maintain safe drivability. The proposed analytical redundancy-based FDI algorithms and the linearized vehicle model were modeled in SIMULINK. Simulation results show that the proposed analytical redundancy-based FDI algorithm provides the same level of fault tolerance as in an SBW system with full hardware redundancy against single-point failures.