A vehicle includes an electric machine, battery, torque converter bypass clutch, drive wheel, and controller. The electric machine is configured to recharge the battery via regenerative braking. The torque converter bypass clutch is disposed between the electric machine and the drive wheel. The controller is programmed to, in response to a negative drive wheel torque command during a regenerative braking event, adjust a closed-state torque capacity of the torque converter bypass clutch based on the torque command.