"Mobileye's work with Tesla will not extend beyond the EyeQ3," executives said on the company's earnings call.
Mobileye will still work on upgrades that affect cars' ability to respond to crash avoidance, and optimize auto-steering without any hardware updates.
The Israeli company currently makes image analysis for Tesla's Autopilot technology that helps drivers steer and stay in lanes.
Tesla CEO Elon Musk said the announcement was expected and will not have a material effect on Tesla's autonomous vehicle plans.
"MobilEye's ability to evolve its technology is unfortunately negatively affected by having to support hundreds of models from legacy auto companies, resulting in a very high engineering drag coefficient," Musk said in a statement Tuesday. "Tesla is laser-focused on achieving full self-driving capability on one integrated platform with an order of magnitude greater safety than the average manually driven car."
Mobileye's announcement comes two months after a fatal accident in Florida fueled debates about the safety of self-driving vehicles. Federal safety officials are investigating the crash between a Tesla car with an Autopilot system and a tractor trailer.
Shares of Mobileye traded near $45 Tuesday, off of their 52-week high of $46.80. The stock is up more than 8 percent year to date but has fallen roughly 24 percent year over year.
The stock jumped more than 5 percent in premarket trading Tuesday after Mobileye posted better-than-expected second-quarter earnings and revenue. The company earned 17 cents per share, beating consensus estimates of 15 cents, according to Thomson Reuters. Revenue came in at $83.5 million, up from $52.8 million a year earlier. Analysts polled by Reuters had expected $77 million.
Mobileye cited strong year-over-year growth in EyeQ chip volume, and highlighted new collaborations with BMW and Intel.
On the earnings call, Mobileye executives said in order to move into more advanced autonomous driving, the company needs partnerships that go beyond the typical original equipment manufacturer, or OEM, to supplier relationship.
"Mobileye will continue to pursue similar such relationships," said Amnon Shashua, Mobileye's co-founder, chairman and chief technology officer.
Mobileye plans for about 2 percent of revenues in 2019 to come from Tesla, the company said.
"We always said that financially, Tesla is not material to the financial results of Mobileye," Ofer Maharshak, Mobileye's chief financial officer and senior vice president said on the call. "Tesla was not material this year in terms of financial but also for 2019."
— Reuters contributed to this report