Grants for electric cars are set to be slashed by £500 and won't apply to the best-selling Tesla vehicle any more under new plans.
A government drive to encourage more green vehicles on the road has seen it subsidisie 35% of the purchase price of certain models up to a maximum of £3,000.
However, a surge in demand has placed huge strain on the scheme, meaning the highest grant available is being dropped to £2,500, while the upper limit of eligible cars is down from £50,000 to £35,000.
As a result, Tesla's popular Model 3 - consistently Britain's best-selling electric car in the last 12 months - won't be covered by the grant any longer due to its £40,500 price tag.
Tesla's popular Model 3 (pictured) - consistently Britain's best-selling electric car in the last 12 months - won't be covered by the grant any longer due to its £40,500 price tag
The Ford Mustang Mach-E, expected to hit the market soon, will also not be covered, though ministers insist overall electric car funding remains unchanged, with more than half of plug-in models still eligible for the grant even after the change.
But the decision was made with the view that taxpayers 'should not be subsidising people to buy £50,000 cars', Whitehall sources told the Times.
The pot will instead be spread more thinly over the next two years.
However, it is likely to spark fury not only among manufacturers but also environmental groups, which have urged the government to introduce more incentives so drivers switch from petrol and diesel cars to less polluting models.
Petrol and diesel cars and vans will no longer be sold in 2030, before hybrids also become banned five years later as part of the drive towards having greener cars on the road.
More than 100,000 plug-ins were sold last year, nearly three times as much as in the previous 12 months, but that still only represented around one in 15 new registrations.
Edmund King, the AA president, told the paper: 'This is not great news for those waiting for delivery of the stylish entry-level Ford Mustang Mach-E as they will find that the price has 'gone up' by £3,000. Many buyers would have been counting on the subsidy.
'On the other hand, most drivers knew that the 'free ride' wouldn't last for ever and at least more early adopters should be able to benefit from spreading the grant further.'
Commenting on the news, Mike Hawes, chief executive at the Society of Motor Manufacturers and Traders, said the decision to slash the Plug-in Car Grant is the 'wrong move at the wrong time'.
In a statement issued this morning, he said: 'New battery electric technology is more expensive than conventional engines and incentives are essential in making these vehicles affordable to the customer.
'Cutting the grant and eligibility moves the UK even further behind other markets, markets which are increasing their support, making it yet more difficult for the UK to get sufficient supply.
'This sends the wrong message to the consumer, especially private customers, and to an industry challenged to meet the Government's ambition to be a world leader in the transition to zero emission mobility.'
Jim Holder, editorial director, What Car?, said the move could potentially limit the government's drive to encourage more motorists to switch to electric vehicles ahead of the 2030 ban on sale of new petrol and diesel passenger cars.
He explained: 'Right now, electric car searches and enquiries on What Car? are at an all-time high. This news is sure to dent that long-term - although there could be a small rush to secure the extra discount if the window of opportunity remains for a short period.
'There are wider implications, too: chopping the grant only widens the gap between EV and ICE [internal combustion engine] prices and emphasises a worrying underlying perception that electric cars are the preserve of the wealthy.
'So too the removal of the grant threatens the already paper-thin profitability of selling EVs in the UK - with huge grants available in countries such as France and Germany manufacturers will likely focus supply to those countries, again throttling the transition to electrification in the UK.
'While it was inevitable the carrot of the grant would whittle down over time and eventually be replaced by punitive measures, this feels too soon to take another step on that journey. The 2030 combustion only ban was announced with much fanfare - the thinking behind how to make the transition to that goal appears to be worryingly muddled, with this decision being further evidence of that.'