Speed regulation of the electro-mechanically actuated systems is common across broad application segments, including industrial and residential sectors. The growth in demand for efficient energy conversion has made permanent magnet synchronous machines (PMSM) a friend, rather than a foe. Vector controlled PMSMs in speed regulation mode being the dominant form of control, accurate speed, and position measurement is crucial. However, a misalignment in the position sensor with respect to the true rotor zero position in speed regulated PMSM drives leads to inefficient energy conversion with the possibility of unstable motor behavior. The impact of such position sensor fault on the overall system performance is presented from an efficiency as well as a control system point of view. The theory presented is further corroborated with simulation and experimental results to practically demonstrate the importance of the position sensor misalignment fault from a speed regulated application point of view. A strategy to quantify the severity of the fault is also proposed and validated with experimental results, supporting fault mitigation activities.