This paper presents aspects of the design solution for a high speed, high efficiency permanent magnet machine used as a motor/generator (M/G) unit in a flywheel energy storage system. The motor is operated in a vacuum with passive cooling; thus the right choice of permanent magnet properties and ability to withstand demagnetization due to the temperature variation and armature reaction is important for the M/G design. Additionally, the M/G is operated with magnetic bearings so radiation is the only heat transfer method for rotor losses. Because of that, special measures are directed toward reducing the rotor losses. Analytical design results obtained by using a commercial motor design software package are presented. An investigation of the armature reaction and magnet demagnetization is performed using the magnetic circuit method and 2D finite element analysis (FEA). The results of the transient 2D FEA are presented. The value of the axial force applied to the rotor due to the stator slots skew as a function of stator current is determined using 3D FEA simulation. The final design results in good torque performance over the entire operating range