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Auto-safety supplier Mobileye N.V., is ending its supply agreement with Tesla Motors Inc. following a high-profile traffic fatality in May that has been connected to semi-autonomous technology it sold to the Silicon Valley electric-vehicle maker.

Mobileye supplies camera-based advanced driver-assistance safety systems that help a vehicle steer or follow behind another car or brake on its own. The Israeli company has agreements with more than a dozen auto makers, but its relationship with Tesla had initially helped bring it to the attention of auto analysts and Wall Street. General Motors Co., Nissan Motor Co., BMW AG and Hyundai Motor Group make up more than 60% of its sales.

Mobileye will no longer provide computer chips and algorithms to Tesla beyond the current product cycle due to apparent disagreements about how the technology was deployed in the auto maker's "autopilot" system. It is unclear when the contract ends, but a new Mobileye system—called the EyeQ4—comes out in 2018.

The friction between Mobileye and Tesla reflects the tension between suppliers that bring cutting-edge technology to the auto industry and the makers they serve. Unlike agreements for more-conventional parts, such as steering wheels, a growing number of tech suppliers demand more control over how the technology is used in the automobiles it goes into.

Mobileye shares fell 7.9% to $45.41 in New York Stock Exchange trading on Tuesday. The stock has increased 27% over the past three months, but that is not enough to offset the 18% decline experienced over the past year.

Mobileye said Tesla would account for about 1% of its revenue in 2016. The company said Tuesday it had $26.9 million in net income in the second quarter on revenue of $83.5 million—a 32% net margin.

Speaking to analysts after the report on second-quarter earnings, Mobileye Chief Technical Officer Amnon Shashua indicated that the accident in May led to the ending of the relationship with Tesla. That crash has triggered an initial probe by the National Highway Traffic Safety Administration and wider scrutiny of semiautonomous-vehicle technology.

"I think in a partnership, we need to be there on all aspects of how the technology is being used, and not simply providing technology and not being in control of how it is being used," he said.

Mobileye said it would support and maintain the current Tesla Autopilot product plans. These include upgrading a vehicle's ability to avoid crashes and optimizing auto-steering without hardware improvements, the company said. Tesla declined to comment on Mobileye's disclosure.

Mobileye makes algorithms and computer chips to interpret images in order to anticipate potential collisions with other vehicles, pedestrians, cyclists, animals, debris and other obstacles.

Mobileye said it would concentrate on systems that lead to full autonomy rather than systems that take partial control from drivers.

Earlier this month Mobileye announced a partnership with BMW and Intel Corp. to design a system for fully autonomous vehicles by 2021. Mobileye has said it has contracts to ship systems that allow for full autonomy to two auto makers by 2019, but hasn't named the companies.

For Tesla, the Mobileye system is used to power its Autopilot, which adds steering through curves, along with adaptive cruise control that could free up a driver's hands and feet. The system, however, is intended to have the driver with his hands on the wheel at all times.

U.S. federal safety regulators are investigating the system after a man died in May when his Tesla Model S hit a truck that was turning in front of him. The Autopilot system was engaged, but it didn't slow the car before it struck the tractor trailer. Tesla said the driver never hit the brakes before striking the truck.

"It's very important given this accident…that companies would be very transparent about the limitations" of autonomous driving systems, Mr. Shashua, Mobileye's technical officer, said at a joint news conference with BMW and Intel earlier this month. "It's not enough to tell the driver to be alert but to tell the driver why," he said.

Tesla said the system failed to distinguish the trailer—which was white—from the bright sky. Mobileye said the system wasn't designed to handle such turns and a new system, the EyeQ4, would be able to detect and respond to such a maneuver.

Write to Mike Ramsey at michael.ramsey@wsj.com

(END) Dow Jones Newswires

July 26, 2016 15:05 ET (19:05 GMT)

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