Electric drive system is a key subsystem of battery electric vehicles (BEVs). Since the electric drive is a single point of failure in BEVs, any abnormality in the components comprising an electric drive system may have significant impact on the vehicle performance. This paper presents a model-based method for detecting and isolating the component faults in an electric drive system, considering electric motor faults and and various sensor faults that include three phase current sensor faults and rotor position sensor faults. The method presented in this paper can be used for developing a systematic diagnostic and prognostic system for electric drive systems of electrified vehicles.