Tesla just stopped selling the cheapest version of the Model 3 in the US. An analyst called it 'a smart strategic move.'

• Tesla just quietly removed its most affordable Model 3 from the US lineup on its website.
• US tariffs on Chinese-made components might have pushed Tesla to discontinue the model.

Tesla just silently killed its most affordable version of the Model 3 sedan in the US — a good move, one bullish analyst told Business Insider.

The Elon Musk-run electric carmaker removed the Standard Range Rear-Wheel Drive Model 3 version from its website as of Wednesday, Reuters first reported.

Priced at $38,990, this model had been the company's cheapest entry-level electric vehicle. Now, the cheapest Tesla car is the Model 3 Long Range Rear-Wheel Drive, priced at $42,490.

The discontinued model used lithium iron phosphate battery cells sourced from China, per Reuters. Earlier this year, the US imposed a 100% tariff on EVs imported from China and a 25% tariff on EV batteries and key minerals.

Vehicles that rely on Chinese-made components, like the LFP batteries, are no longer eligible for the $7,500 federal tax credit.

Dan Ives, an analyst at Wedbush and a longtime Tesla bull, told Business Insider that the discontinuation is "a smart strategic move" signaling a greater focus on the Long Range Model 3.

"The tariffs on Chinese EVs speak to more tension in the US-China Cold Tech War that benefits Tesla," Ives said.

He also said that removing the Standard Range model doesn't significantly impact Tesla's overall strategy because the Model Y remains the company's main focus in the US EV market. That car starts at $44,990.

Affordability has become a major issue for electric carmakers. Most EV options, including Tesla's, remain more expensive than the average gas-powered car.

Tesla has long talked about building a cheaper car than the Model 3, but it has yet to bring one to the market.

Tesla's decision to discontinue the cheapest version of its Model 3 came just as the company slightly beat analysts' delivery expectations, with third-quarter sales rising to 462,890 vehicles.

Ives told BI that Tesla's sales were "a step in the right direction" to meet its yearly target of 1.8 million vehicle deliveries.

Bargain Chinese EVs

Adding to the price war are Chinese competitors like Xpeng, which recently launched the Mona M03 at $16,800 — less than half the price of Tesla's Model 3 in China.

Nio and BYD are planning a new, affordable brand called Onvo, which would directly compete with Tesla's Model Y. Nio also has plans to launch a second EV brand named Firefly, which would retail for under $30,000, Reuters reported in May.

Chinese government policies, including scrapping and replacement subsidies, continue to fuel demand for more affordable EVs in the country, HSBC analysts wrote in a September note.

The bank expects over 100 new models to launch in China by the end of 2024, primarily led by the country's EV brands.

Tesla did not respond to a request for comment sent by BI outside business hours.