To study the irreversible demagnetization fault of the permanent magnets (PMs) in the permanent magnet synchronous motor (PMSM), a two-dimensional Finite Element (FE) model of the PMSM is built by the Finite Element Method (FEM). Analysis of demagnetization faulty mechanism of the electric and magnetic signals under local demagnetization conditions is conducted. The no-load Back-EMF signal is adopted as the indicator of the demagnetization faults of PMSM. In this paper, the faults of uniform demagnetization and single magnet demagnetization are studied through FEA. Therefore, the relationship between the amplitude of the back EMF and the degree of demagnetization is obtained. Moreover, the fitting curve is obtained by using the least squares method from multiple sets of FEA results. The results show that the method can effectively diagnose the demagnetization fault of the PMs of the PMSM, and could provide the guideline for online health monitoring of the PMSM in future research works.