The shear cutting of electrical steel sheets has a significant influence on the magnetic and mechanical material properties. Due to plastic deformation and strain hardening in the area of the punched edge, the electrical steel sheets exhibit a characteristic hardness profile. This study deals with the modelling of the resulting hardness profile by means of finite‐element simulations. Elastic‐plastic material properties are obtained from spherical nanoindentation testing as a function of the local hardness. In particular, representative stress‐strain values are determined by applying Tabor's concept of indentation stress‐strain curves. The choice of the appropriate stress‐ and strain‐constraint factors is discussed with respect to the nanoindentation test setup used. Following this, the representative stress‐strain values are analytically described to determine true stress‐strain curves for the local assignment of different material models depending on the hardness. The implementation of the modelling approach in a finite‐element simulation is presented for a punched electrical steel sheet specimen under monotonic loading. The simulation results are basically in good agreement with experimental data and confirm the expected influence on the mechanical material behaviour due to the shear cutting process.