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The machine under study is a surface-mounted outer rotor permanent magnet (PM) synchronous machine with concentrated windings, which is integrated in a flywheel of a diesel engine. The main objective of this work is to build an accurate nonlinear transient finite element method (FEM) model coupling to circuit model and validate this experimentally. The FEM model is made by scripts, so it is very convenient to change design parameters of PM machine. This will help in design optimization of PM machines. A sample PM machine is investigated for validating no-load voltage, load voltage, electric current, electromagnetic torque, short circuit current and reactance of FEM model. Comparison of simulation and experimental results shows very good agreement with error margin smaller than 3%. Results show that the end effects of a PM machine with concentrated windings having large number of teeth and poles can be neglected, even when its diameter is larger than its length. Analysis of results during three-phase short circuit shows that armature current during short circuit is limited strongly by armature reaction in the d-axis direction, even though the winding resistance is much smaller than the reactance. It can be shown that a PM machine designed with reasonable reactance can avoid demagnetization due to three-phase short circuit.