Mobileye NV (NYSE:MBLY) tanked over 17 percent on bad news about its partnership with Tesla Motors Inc (NASDAQ:TSLA) now down only a bout 6 percent. but some think its overdone.

Steve Schoenfeld, Founder and CIO of BlueStar Indexes, the firm which powers the only U.S.-listed Israeli tech ETF (ITEQ). He notes the selling in Mobileye (MBLY) is way overdone and provide thoughts on why Mobileye holds a key strategic role in the future of the automotive industry.

Mobileye NV MBLY

Specifically:

The sharp drop in Mobileye shares is an over-reaction to the news that the company is ending its business partnership with Tesla for the semi-autonomous ‘AutoPilot’ system, to focus on fully-autonomous vehicle technology. Tesla is less than 1% of Mobileye’s current revenue, and only approximately 2% of FY2019 guided revenue, so compared to clients like Volkswagen, GM, MW and Hyundai, Tesla’s impact is quite small.

Mobileye announced this morning that it beat second quarter earnings expectations, almost doubling last year’s same period per-share earnings, and a profit margin of around 50%. Clearly MBLY had a strong run-up in the past three months – up more than 25% prior to this morning’s drop – so a sharp reaction to the high-profile Tesla news isn’t shocking, but it is an overreaction. Tesla, despite all the hype is just a car company, and it will have difficulty in competing at scale with major firms like GM, BMW, Volkswagen, Ford and Nissan-Renault.

Mobileye has a key strategic role in the future of the automotive industry, as its partnership with BMW and Intel for an autonomous vehicle demonstrates. Mobileye is also a key supplier to Volkswagen, Nissan, GM and Ford.

MBLY is the largest constituent of the BlueStar TA-BIGITech Israel Technology ETF (ITEQ – Nasdaq), at approximately 11.2% and also has a weight of approximately 4.5% in the VanEck Vectors Israel ETF (ISRA – NYSE) and a 6.5% weight in the iShares MSCI Israel ETF (EIS – NYSE). It is also a constituent of seven other global ETFs, including VT, ACWI and EFA, but with a weight of less than 6 bp in all of these seven ETFs.