Tesla has scrapped plans to create its long-awaited cheap electric car as competition from China forced the company to rethink its strategy.

According to sources close to the scene, the EV carmaker will continue to go ahead with its self-driving robotaxis but will be halting production plans on cheaper Tesla models.

The U-turn by Tesla goes against the company’s original goal announced in 2006 to create a “low-cost family car”.

Tesla as well as many other EV producers has been met with fierce competition globally from China which is dominating the EV race.

Tesla founder disputed claims by Reuters calling them 'lies'

Chinese car manufacturers have repeatedly undercut the price of EVs making them the cheapest option for drivers.

In Europe, one in five electric cars are Chinese made, with prices for some as low as £10,000, a price Tesla cannot match.

Tesla’s latest Model 3 comes in at between £39,990 and £49,990, still too expensive for drivers to consider when given a much cheaper choice by China.

China has been able to offer customers cheaper cars through its variety of subsidies which has helped offset production costs and boost market penetration.

The Tesla Model Y was the best-selling EV of last year TESLA

Two sources told Reuters that Tesla was planning on scrapping its Model 2 at a meeting in late February with the company reportedly going “all in” on its robotaxi drive instead.

Taking to X, Elon Musk, founder of Tesla slammed the claims calling them “lies”.

He tweeted: “Reuters is lying (again).”

Despite rejections by Musk, a source from Tesla’s camp stated that the decision to move away from the affordable car in favour of robotaxis was due to what Musk envisioned as the “future of mobility”.

However, the source did note that Tesla product plans were not set in stone and could change depending on economic conditions.

Musk has been promising a new Tesla model for a few years now with expectations predicting the vehicle would come in at $25,000 (£19,780), the cheapest model to date for the car brand.

Currently, self-driving cars have only been approved by US and Chinese regulators for limited use on public roads. In the UK, plans to push for self-driving cars are underway.

Transport Secretary Mark Harper has promised the rollout of self-driving vehicles soon, so long as they meet the necessary regulatory requirements.

The Automated Vehicles Bill, which would introduce the cars onto UK roads is currently making its way through parliament.

The Tesla Roadster was first unveiled in 2017TESLA

The Bill is now wrapping up and is due to have its report stage and third reading before receiving royal approval to become British law.