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Tesla is set to report its strongest quarter of 2025 on Thursday, thanks largely to a U.S. consumer rush to secure the now-expired $7,500 federal EV tax credit. 

While the surge lifted sales in recent months, analysts caution that the momentum may be short-lived, with European weakness and reduced subsidies weighing on the company’s outlook.

Shares of Tesla (TSLA) rose 2.2% in Wednesday morning trading to $454.60. The EV stock is up more than 36% over the last six weeks.

U.S. Tax Credit Creates Tesla Surge

The end of the federal EV tax credit earlier this week pushed many U.S. buyers to accelerate Tesla purchases they might have made later this year. Wall Street analysts expect Tesla to deliver about 441,500 vehicles in the third quarter, though estimates vary.

“The $7,500 credit definitely should have some effect that pulled forward demand this quarter,” said Ken Mahoney, CEO at Mahoney Asset Management. “The credit’s expiry could leave a U.S. demand gap in the fourth quarter.”

Tesla also raised leasing prices in the U.S. after Congress ended incentives, reflecting the challenges of maintaining demand without federal support.

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China Could Offset Weakness

While U.S. demand may slow, analysts believe Tesla’s September launch of the six-seater Model Y L in China could cushion the blow. Deutsche Bank analysts noted the Model Y L could drive sales momentum in Asia, though Elon Musk has confirmed the model won’t reach the U.S. until late 2026.

Morgan Stanley believes that the Tesla (TSLA) rally is just getting started. "At $1.3tn, Tesla is by far the smallest market cap of the Mag 7 (ex TSLA 'Mag 6' have an average market cap of $3.2tn). This is arguably the largest addressable markets - particularly in the emerging field of physical AI," highlighted analyst Adam Jonas.

China remains a vital market for Tesla, where price cuts and new models have kept margins tight but competitive.

Tesla Struggles in Europe

Tesla’s European sales have faltered. In August, registrations in the EU and UK fell 22.5% year-over-year, cutting the company’s market share to just 1.5%, according to the European Automobile Manufacturers’ Association. Analysts say the aging lineup, increased competition from hybrids, and Musk’s controversial political stances have dampened buyer sentiment.

“Since Tesla has such strong margins per vehicle, they have more room to play with the pricing dynamic if they needed to,” said Brian Mulberry, senior client portfolio manager at Zacks Investment Management.

Stock and Market Outlook

Despite looming headwinds, Tesla stock (NASDAQ: TSLA) has rallied in recent weeks. Shares climbed 2.2% Wednesday morning to $454.60, up more than 36% over the past six weeks. Analysts at William Blair boosted their Q3 delivery estimate to 480,000, above consensus, citing a “bigger pull-forward in U.S. demand than anticipated.”