About 40% of the fuel energy in an internal combustion engine is lost as exhaust heat. Thermoelectric generators (TEGs) can recover the heat energy in the exhaust gas, improving the fuel efficiency of the vehicle and reducing emissions. In this study, a method of setting up TEG model using real testing data is proposed; model of a TEG-based vehicle power system is built; and the potential of the TEGs to improve the fuel efficiency of conventional vehicles and hybrid electric vehicles (HEVs) is examined by integrating the TEG into the vehicle power bus as a second generator. Firstly, output power model of one thermoelectric module is constructed in MATLAB/Simulink according to testing data, which is convenient and convincing. Then the model of TEG system is built using Matlab/Simulink software, taking the temperature distribution of the heat exchanger into consideration. A TEG-based vehicle power system is constructed and integrated into the vehicle model by constructing a relationship between the temperature difference and the engine speed. The vehicle simulation software ADVISOR is chosen as the vehicle simulator and simulations are carried out considering four typical driving cycles and six electrical load situations for a conventional vehicle and a parallel hybrid vehicle with the TEG-based vehicle power system. The results of the fuel consumption are compared and analyzed to quantify the fuel economy benefits and it shows that fuel economy improves in both vehicles and a larger improvement can be seen in conventional vehicle. In addition, an effort is made to identify the technological and economic barriers that might prevent automotive TEGs from becoming an acceptable means of waste heat recovery.