I'd suspect maybe the tank check valve isn't holding properly. Once the air is compressed and pushed into the tank, the check valve keeps the air in the tank and stops it from coming back against the compressor. When the pressure switch shuts the motor off, an unloader valve opens and drains the pressure off of the discharge line and cylinder head so the compressor can restart without being under load.
If the check valve doesn't hold properly the air can keep bleeding back to the compressor cylinder and then leaking out of the unloader valve. The check valve is located at the tank, right where the compressor discharge line enters the tank. It might be partly working once pressure bleeds down a little, but not holding at full pressure.
This compressor is two stage, these are typically set to cycle between 150-175 psi. You use a regulator to lower the tank pressure down to your desired line pressure. This ensures you always have a steady, constant pressure in your shop lines and will give you more even tool performance. Setting the pressure lower defeats the purpose of buying the larger compressor. An air tank will store about 50% more cubic feet of compressed air at 175 psi than it does at 125 psi.