A vehicle includes an engine having a crankshaft, a transmission, an electric machine, and at least one controller. The transmission includes a torque converter having a turbine fixed to a turbine shaft that is driveably connected to driven wheels of the vehicle. The torque converter includes an impeller and a bypass clutch configured to selectively lock the impeller and the turbine relative to each other. The electric machine includes a rotor selectively coupled to the crankshaft via a disconnect clutch and fixed to the impeller. The at least one controller is configured to generate a first torque command for the electric machine that defines a magnitude equal to driver-demanded torque while the bypass clutch is locked. The controller is further configured to, in response to a reduction in fluid pressure supplied to the bypass clutch, generate a second torque command for the electric machine that defines a magnitude equal to driver-demanded torque plus impeller inertia torque.