The USMCA review may compress the room for Chinese ESS companies to transship via Mexico

Overview

This report analyzes the potential impact of the six-year USMCA joint review on Chinese energy storage system (ESS/BESS) companies. The core issue is that Chinese companies may use China-made LFP cells, complete assembly in Mexico, and then supply the U.S. market while attempting to obtain preferential tariff treatment under current USMCA rules. Nomura believes this legal and supply-chain arbitrage is becoming a key focus of U.S. negotiations.

Core views

The report's core view is that the USMCA review may shift from a procedural renewal to a substantive tightening. If the United States pushes for restrictions on Chinese equity ownership, higher RVC thresholds, or core-component testing for cells, the assembly model of Chinese ESS companies in Mexico will face higher costs, pressure to adjust ownership structures, and compliance barriers. The most disruptive scenario is one in which cells are required to independently satisfy a high North American RVC ratio, because that would make China-made cells difficult to keep compliant regardless of how overall system costs are configured.

Analysis framework

The report uses a combination of policy scenario analysis, interpretation of rules of origin, and a breakdown of BESS cost composition to assess three possible USMCA outcomes: a 16-year extension without renegotiation, a revised extension with stricter rules, and a shift into annual review mode. The report also separately evaluates the impact paths of equity restrictions, higher RVC requirements, classification of cells as core components, and an investment review mechanism in Mexico.

Methodology notes

• Policy scenario analysisUSMCA joint review scenarios

  Three review outcomes

  The report divides the possible outcomes of the July 1, 2026 USMCA review into three categories: a 16-year extension without changes, a revised extension with stricter ROO and restrictions on Chinese equity ownership, and an annual review mode if no long-term extension is reached.

• Trade rule analysisRules of origin and regional value content

  ROO/RVC compliance pathways

  BESS cannot satisfy rules of origin through a tariff classification shift and therefore mainly relies on RVC thresholds of 65% under the transaction value method or 55% under the net cost method; if the threshold is raised above 75%, compliance difficulty rises significantly.

• Supply chain cost analysisBESS system cost breakdown

  Constraints from North American content in cells and non-cell components

  The report notes that cells account for about 52% of the cost of a grid-scale BESS system, and the ceiling for North American content in non-cell components is insufficient to support RVC above 75% unless North American-sourced cells are used.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chinese ESS companies

  Primary affected group

  Strengths

  They possess China-based LFP cell manufacturing and system integration capabilities and can use assembly in Mexico to get closer to the U.S. market.

  Weaknesses

  They rely heavily on China-made cells and Chinese-controlled ownership structures, leaving insufficient compliance flexibility under tighter USMCA rules.

  Comparison

  Compared with companies that have North American local cell sourcing, Chinese ESS companies are more vulnerable in RVC and ownership compliance.

  Risks

  Loss of preferential tariff eligibility, ownership dilution, rising costs, and lower returns on Mexico capacity investments.

• Mexico BESS assembly supply chain

  Potential arbitrage pathway

  Strengths

  Under current rules, it can serve as an assembly and re-export platform linking Chinese cells with U.S. demand.

  Weaknesses

  If cells are classified as core components or RVC thresholds are raised, the assembly step alone will struggle to meet North American content requirements.

  Comparison

  Compared with full North American localized manufacturing, the Mexico assembly model relies more on gaps in the rules.

  Risks

  Loss of USMCA preferential treatment and annual-review uncertainty suppressing capital expenditure.

• North American cell suppliers

  Potential beneficiaries

  Strengths

  If RVC rises or cells must independently comply, the strategic value of North American-sourced cells increases.

  Weaknesses

  Current supply remains limited, and LFP capacity release will take time.

  Comparison

  Compared with Chinese cell suppliers, North American cells have an advantage in policy compliance, though cost and capacity may still be constraints.

  Risks

  Delayed capacity ramp-up, persistently high costs, and uncertainty over the speed of demand switching.

• LGES (373220 KS)

  Variable easing North American LFP supply

  Strengths

  The report mentions that its LFP facilities may ease North American cell supply constraints after reaching mass production in 2027-28F.

  Weaknesses

  In the short term, it is still unable to materially improve the supply gap.

  Comparison

  Compared with companies reliant on China-made cells, suppliers with future North American LFP capacity are more aligned with potential new rules.

  Risks

  Uncertainty over mass-production timing, cost competitiveness, and the final form of policy rules.

Key data

• Report date2026-04-25The date shown in the body of the report is 25 April 2026.
• BESS-related HTS code8507.60The report states that BESS is classified under Harmonized Tariff Schedule code 8507.60.
• Cell-related HTS code8507.90The report states that cells and battery packs fall within a related tariff framework, limiting the CTC pathway.
• Current RVC threshold65% / 55%At least 65% under the transaction value method and at least 55% under the net cost method.
• Potential new RVC threshold75%+The United States may push non-automotive battery products toward a North American content standard close to that of automobiles.
• Chinese equity ownership restriction>25%Companies with more than 25% Chinese beneficial ownership may be excluded from USMCA preferential tariff treatment.
• Cell cost share52.0%The table shows that cells account for about 52% of system cost in grid-scale BESS.
• Legislative cycle for Mexico investment review2-3 yearsThe report estimates that if Mexico establishes a CFIUS-like FDI review mechanism, it would require roughly 2 to 3 years of domestic legislative process.
• Timing of LGES LFP capacity2027-28FThe report believes North American LFP supply constraints may not ease until LGES facilities ramp up production.

Impact & implications

If USMCA rules tighten, the commercial logic of Chinese ESS companies entering the U.S. market after assembling in Mexico will be weakened. Equity restrictions may force Chinese companies to reduce ownership to below 25%; higher RVC thresholds will create pressure to source North American cells and raise costs; core-component testing for cells would directly exclude China-made cells; and over the longer term, if Mexico establishes an investment review mechanism, it would also reduce the attractiveness of continued Chinese capital investment in local battery capacity.

Risks

• The USMCA review may incorporate stricter rules of origin and RVC standards.
• A restriction on more than 25% Chinese beneficial ownership may cause Chinese-controlled companies to lose preferential tariff eligibility.
• If cells are designated as core components and tested separately for RVC, it will make it nearly impossible for China-made cells to circumvent the rules through assembly in Mexico.
• An annual review mode would shorten policy visibility and create capital expenditure pressure for factories with 2- to 3-year construction cycles.
• If Mexico establishes a CFIUS-like investment review mechanism in the future, Chinese greenfield investment will face higher regulatory risk.

What to watch

• Whether the July 1, 2026 USMCA joint review results in a 16-year extension, a revised extension, or a shift into annual review.
• Whether the United States formally proposes an exclusion clause for more than 25% Chinese beneficial ownership.
• Whether the RVC thresholds for BESS and cells are raised above 75%.
• Whether cells are designated as core components that must independently satisfy RVC.
• Whether Mexico initiates FDI review legislation or introduces a CFIUS-like investment review framework.
• The commissioning and ramp-up progress of North American LFP cell capacity from LGES and others in 2027-28F.