The Toyota driver won Friday’s opening stage held in poor visibility due to hanging dust but on the next test the Welshman suffered a water leak on his GR Yaris.
Evans started Stage 3 with a 4.7s lead over Hyundai’s Ott Tanak before the problem struck that cost him 11.1s and the rally lead.
Last year’s championship runner-up managed to reach the stage finish but was unable to speak to the stage end reporters, leaving the stop control area using EV power.
Toyota has since confirmed the issue will end Evans’ Friday running prematurely, and with it any hope of building upon a first podium of the season achieved at Rally Portugal two weeks ago.
The team revealed that a “big impact” had caused the issue, triggering the first retirement of the rally.
“Unfortunately Elfyn Evans and Scott Martin have stopped for today after a big impact and water temperature warning in stage 3,” read a statement from Toyota.
Toyota is expected to attempt to fix the issue to allow Evans to rejoin the rally on Saturday under restart regulations.
"Disappointed to retire so early after an unexpected impact in a compression, especially as we had a good start and an early lead," tweeted Evans.
"The team will investigate the damage further in service."
Evans’ exit coincided with Toyota team-mate Esapekka Lappi winning Stage 3 to catapult from fifth overall into the rally lead with a 1.9s margin over Tanak.
M-Sport’s Craig Breen was promoted to third ahead of team-mate Pierre-Louis Loubet, while championship leader Kalle Rovanpera, starting first on the road, ended the first pair of morning stages in fifth overall.
Evans wasn’t the only driver to hit trouble in Stage 3 as M-Sport’s Gus Greensmith suffered a half spin that cost him almost two minutes as he tried to reset the car. Greensmith was able to reach the stage end but has dropped out of contention sitting almost two minutes adrift of the pace.
Crews will repeat the two morning stages before heading back to the service park in Alghero.
