Shares of Mobileye (NYSE:MBLY) fell by as much as 14% on July 26 after the company announced that Tesla Motors (NASDAQ:TSLA) wouldn't buy its computer vision chips beyond the current-gen EyeQ3. That decision seems directly linked to a fatal crash involving Tesla's Autopilot system, which runs on the EyeQ3 chip, in early May.

Image source: Tesla Motors.

Mobileye rebounded after investors digested its second-quarter earnings report, which saw revenue soar 58% annually to $83.5 million and beat estimates by $6.2 million. Non-GAAP earnings per share rose 70% to $0.17 per share, beating expectations by two cents.

But should Mobileye investors simply shake off the Tesla news and move on? Or does losing Tesla leave the company more vulnerable to ambitious rivals like Nvidia (NASDAQ:NVDA) and NXP Semiconductors (NASDAQ:NXPI)?

Reputation or revenue?

Mobileye's ADAS (advanced driver assistance systems) are used by 90% of the world's top automakers. These systems use cameras, radars, and computer vision chips to detect obstacles on the road and hit the brakes. They also detect the edges of lanes so vehicles can cruise within a single lane without manual steering. The major selling point of Mobileye's technology is that it's much cheaper than fully autonomous solutions like the LIDAR system used in Alphabet's autonomous cars.

Tesla's Autopilot merges those functions in an advanced form of semi-autonomous driving which maintains the vehicle speed, spots obstacles, and stays in a single lane. However, it was never intended to be a fully driverless system. The manual states that drivers "must keep their hands on the steering wheel at all times," and vehicles emit audible and visual warnings when they aren't. In the Ohio crash, a preliminary report from the U.S. National Transportation Safety Board found that Autopilot didn't detect a 52-foot trailer crossing the road in broad daylight. The vehicle struck the trailer at 74 MPH without slowing down, indicating that neither the driver nor the system spotted the obstacle in time.

Tesla Autopilot. Image source: Tesla Motors.

Losing Tesla's business won't make much of an impact on Mobileye's revenue, since Tesla shipped just over 50,000 vehicles in 2015. That's a drop in the pond compared to the 74.4 million new cars shipped worldwide last year. Top Mobileye customer General Motors shipped 9.8 million cars last year, and Frost & Sullivan estimates that it could ship 15.5 million ADAS-equipped vehicles by 2020. Therefore, Mobileye investors shouldn't measure the break up with Tesla in terms of revenue. Instead, they should consider how it might impact its "best-in-breed" appeal with major automakers.

Rivals set their eyes on EyeQ

Demand for Mobileye's EyeQ chips has been robust. Chip volumes rose 45.4% annually last quarter, while its average selling price per chip rose from $43.70 to $44.50. Last March, Mobileye announced the EyeQ4, a fourth-generation computer vision chip designed to start bridging the gap between ADAS systems and autonomous vehicles in 2018.

This May, it announced the EyeQ5, which will be eight times faster than the EyeQ4 and consume less than 5W of power. It claimed that the chip would become the "central computer performing sensor fusion for fully autonomous driving vehicles starting in 2020." Mobileye co-develops the EyeQ chips with STMicroelectronics.

However, many of Mobileye's rivals are also eyeing the same market. Nvidia -- which provides Tegra processors for infotainment and navigation systems in high-end vehicles like Tesla's -- recently launched its Drive PX platform for autonomous cars. The fact that Nvidia and Tesla have been partners since the Model S has fueled speculation that Tesla could replace Mobileye's tech with Nvidia's. NXP, the largest automotive chipmaker in the world, recently launched BlueBox -- a competing turnkey platform for autonomous cars.

Both companies threaten Mobileye because they have deeper pockets and their other automotive chips provide more bundling possibilities. If Nvidia and NXP turn on the heat against Mobileye, it could struggle to preserve its dominant share of the ADAS market.

What's next for Mobileye?

I have two major concerns about Mobileye. First, I'm not convinced that it can maintain its "best in breed" reputation after the Autopilot debacle, especially with Nvidia and NXP breathing down its neck. It recently secured an encouraging partnership with Intel and BMW for autonomous cars, but the stock also plunged last December when Ford announced that it would work with Alphabet's Google on autonomous vehicles instead of Mobileye.

Second, Mobileye's forward P/E of 45 looks frothy. Granted, analysts expect the company to post 48% annual earnings growth over the next five years, but I'm taking those estimates with a grain of salt considering the headwinds it faces. Therefore, I think Mobileye's an interesting stock to watch, but I wouldn't be a buyer unless it can widen its moat against Nvidia, NXP, and other challengers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.