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This paper presents a novel method to diagnose demagnetization in permanent-magnet synchronous motor (PMSM). Simulations have been performed by 2-D finite-element analysis in order to determine the current spectrum and the magnetic flux distribution due to this failure. The diagnostic just based on motor current signature analysis can be confused by eccentricity failure because the harmonic content is the same. Moreover, it can only be applied under stationary conditions. In order to overcome these drawbacks, a novel method is used based upon the Hilbert-Huang transform. It represents time-dependent series in a 2-D time-frequency domain by extracting instantaneous frequency components through an empirical-mode decomposition process. This tool is applied by running the motor under nonstationary conditions of velocity. The experimental results show the reliability and feasibility of the methodology in order to diagnose the demagnetization of a PMSM.