Aston Martin will end production of its small car, the Cygnet, at the end of the year.
When production began in 2011, Aston targeted annual sales of 4,000 Cygnets, but ended up selling fewer than 150.
Analysts also say the £32,000 ($51,500) selling price was too much for the model.
Other luxury car makers have had success with smaller cars. Audi's A1 has sold well and BMW's Mini brand has been a success.
"The Cygnet was intended to catapult the brand into a new market but at roughly double the price of many competing cars in that segment, it was misjudged by Aston Martin," said Ian Fletcher, an automotive analyst at research consultancy IHS.
"The premium supermini market is a good place to be at the moment but Aston got it wrong in thinking putting a grill and a fancy interior on what was basically a Toyota iQ would make people buy it," he said.
Aston Martin said that no jobs will be lost due to the demise of the Cygnet.
The company has been struggling to reverse falling sales and mounting losses.
In 2012, it reported an adjusted loss of £24.6m and reported sales of 3,800 units, down from 4,200 a year earlier.
But the company has a plan to double sales by 2016 with upgrades of its most popular sports cars.
Aston Martin has several major shareholders. Italian private equity firm Investindustrial owns a 37.5% stake, and it also has two Kuwaiti shareholders - Investment Dar and Adeem.