The effect of the magnetic and thermal properties of four electrical steel grades were compared for a permanent magnet synchronous generator (PMSG). The low loss grades are expected to have less iron loss in the stator laminations, but their thermal conductivity may be lower. Therefore, the evacuation of the heat may be less effective. This has an influence on the temperature distribution, which is crucial in case of PMSG. The investigated generator is a 5 MW, radial flux machine designed for direct-drive wind turbines. A thermal finite-element model was used to simulate the temperature distribution in the generator. The influence of the steel grade on the thermal distribution was compared for four geometries of PMSG with varying air-gap diameter and pole-pair number. In conclusion, the number of pole pairs has a major influence on the importance of electrical and thermal properties of the steel grades applied.