-The flux gaps in alternate stator teeth of the modular PM machines can have a significant impact on the total magnet flux density, and hence, the potential magnet reversible/irreversible demagnetization under flux weakening operations or short-circuit conditions. Such a problem has not been studied in literature and will be investigated in this paper. The influence of flux gaps on the d-axis inductance and the potential peak short-circuit current is analysed for different slot/pole number combinations. It is found that the flux gaps will affect both the d-axis inductance and open-circuit flux linkage, and hence reduce short-circuit current of machines with pole number (2p) smaller than slot number (N s ) while they will increase the short-circuit current of machines with 2p > N s . However, the opposite phenomena can be observed for demagnetization withstand capability. For machines having 2p < N s , the flux gaps tend to lower withstand capability, whilst for machines having 2p > N s , this capability can be improved. Other parameters, such as magnet thickness, temperature, etc., have also been accounted for in the demagnetization analysis. Tests have been carried out to validate the predictions of inductances and short-circuit current as well as performance such as phase back-EMF, cogging torque and static torque for machines with one defective magnet, which represents the case of partially demagnetized magnets. Index Terms -demagnetization withstand capability, flux gap, modular machine, permanent magnet, short-circuit current.