Mobileye says Tesla contract won't be extended; tech supplier posts 76% gain in Q2 profits

Mobileye NV, an Israeli maker of driving-assistance chips and software, posted a surge in second-quarter earnings and revenue, but said its contract with Tesla Motors Inc. would not be renewed after it expires. The news sent Mobileye shares plunging more than 13 percent in early trading. The shares ended the day down 8 percent to $45.33. Both Tesla and Mobileye are followed closely by investors and analysts on Wall Street because of their future potential for developing autonomous driving technologies. "Mobileye's work with Tesla will not extend beyond the EyeQ3," Mobileye said in a statement, referring to its chips that provide image analysis for Tesla's Autopilot technology, which helps drivers steer and stay in lanes."We continue to support and maintain the current Tesla Autopilot product plans," Mobileye said.The company did not say when its current contract with Tesla will expire.Neither Mobileye nor Tesla would say which company initiated the move.Mobileye's plans come at a time when the electric car maker's Autopilot is facing scrutiny from regulators following a fatal accident in May.Tesla in a statement said only that it was "transitioning to internally developed software for the camera portion of Autopilot."Fully autonomous driving requires a “paradigm shift” in terms of complexity and the “need to ensure an extremely high level of safety,” Mobileye Chief Technology Officer Amnon Shashua told investors during the company's second-quarter conference call.“There is much at stake here, to Mobileye’s reputation and to the industry at large,” he said. “We think that that’s not in the interest of Mobileye to continue with Tesla in that area.”Tesla is “not material" to Mobileye’s financial results, he said. Musk’s responseTesla CEO Elon Musk said Mobileye’s agreements with other automakers prevent it from keeping up with Tesla’s pace of development.“Mobileye’s ability to evolve its technology is unfortunately negatively affected by having to support hundreds of models from legacy auto companies,” the CEO said in an e-mailed statement. “This was expected and will not have any material effect on our plans.”In a December blog post, Tesla said Mobileye's EyeQ3 chip, which is used in the Model S and Model X, "is the best in the world at what it does, and that is why we use it."Reputation risk“We believe that Mobileye may be concerned about their own reputation risk with Tesla potentially trying to push the technology beyond what it was meant to do,” Joseph Spak, an analyst with RBC Capital Markets in New York, wrote in a note to clients. “We don’t believe this will portend other automakers taking similar actions.”Mobileye, which is working with about two dozen global vehicle manufacturers, said it planned by 2020 to offer a hardware/software system that can gather, fuse and analyze data from 20 different sensors, including cameras, lidar and radar.Tesla has eschewed the laser-based lidar sensors that many manufacturers are incorporating into their self-driving systems, electing instead to focus on cameras, radar and ultrasonic sensors.Musk said in his latest "master plan" last week that his company planned to make fully autonomous vehicles in the future.BlueStar Indexes, which manages a U.S.-listed Israeli tech fund, said Tesla accounted for less than 1 percent of Mobileye's current revenue and about 2 percent of projected 2019 sales. Compared with clients such as Volkswagen AG and General Motors, "Tesla's impact is quite small," BlueStar said.Q2 gainsMobileye, meanwhile, reported sizable gains in earnings and revenue for the second quarter, helped by strong sales and higher prices for the EyeQ chip line.The company said net income surged 76 percent to $26.9 million while revenue grew 59 percent to $83.5 million.Mobileye CEO Ziv Aviram said the company won new business at all levels during the first half of the year from its automated driving (ADAS) and road experience management (REM) products. "In addition to winning new ADAS programs and new tier-one partnerships, we have begun an expansion of our value proposition by creating partnerships with automakers and others in order to bring fully autonomous driving to volume production within the next five years," Aviram said in the company statement."The BMW/Intel/Mobileye partnership is the first significant collaboration of this type and we anticipate others. Overall, we believe we have made important progress in advancing our strategy of securing a significant, long-term presence in all levels of autonomous driving." Reuters, Bloomberg and Automotive News staff contributed to this report.

Mobileye says Tesla contract won't be extended; tech supplier posts 76% gain in Q2 profits

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