Asia power equipment under the U.S. Executive Order Report Interpretation

Overview

This expert-call note examines how a U.S. Executive Order restricting certain foreign-made bulk-power equipment may affect Asian power-equipment suppliers. JPMorgan expects the greatest direct pressure on Chinese high-voltage transformer exports to the United States, while highlighting implementation uncertainty, possible compliance pathways, alternative export markets and potential upside for Korean competitors.

Core views

JPMorgan argues that the Executive Order could have a profound effect on Asian electrical-equipment companies because it allows the U.S. Department of Energy to block the purchase, import, transfer or installation of foreign-produced bulk-power equipment involving covered foreign entities that present unacceptable security risks. The expert said the order explicitly covers grid equipment and facilities rated at 69 kV and above, while also bringing energy-storage inverters, electrochemical energy storage and, especially, control components into scope. For a major Chinese transformer manufacturer, more than 90% of direct exports to North America have been transformers rated 69 kV or above, making its U.S. business particularly exposed. The immediate impact appears to be disruption rather than confirmed cancellation. The expert reported that numerous orders are being reviewed, renegotiated, held pending signature or delayed, including some recently signed contracts. There had not yet been large-scale cancellations because customers are awaiting detailed implementation rules from the Department of Energy, due within 120 days. A draft-and-discussion process could create a temporary buffer, and some customers may try to accelerate deliveries before final rules take effect. Customer actions may diverge because different utilities are assessing legal risk differently. The report distinguishes high-voltage transmission equipment from lower-voltage distribution products. Equipment below 69 kV, especially 10–35 kV distribution transformers, is not expected to be directly affected according to the expert. The stated reasons are that distribution transformers are not explicitly covered, their individual capacity has limited national-grid-security significance, and U.S. domestic capacity is relatively sufficient, reducing reliance on Chinese imports. Utilities could nevertheless reduce procurement from restricted countries, but the expert expects the overall effect on this segment to be small. JPMorgan’s supply analysis suggests that an exclusion of Chinese transformers could create operational costs for U.S. grid and data-center projects. China historically accounts for less than 10% of the overall U.S. transformer market, but the expert estimates its share of high-voltage transformers connecting data centers at at least the teens percentage range. Chinese producers are described as having large global capacity, roughly six-month delivery capability for large equipment, stable quality and a complete supply chain. By comparison, European lead times are typically two to 2.5 years, sometimes more than 30 months, and lead times in Turkey and Mexico are generally over one year. The report therefore expects lost Chinese capacity to lengthen delivery schedules, raise prices for urgent orders and potentially delay grid interconnection. The expert nevertheless identifies several reasons not to be entirely pessimistic. The order is seen as focused principally on monitoring, control and backend components rather than the transformer body itself, which is an electromagnetic energy-conversion component accounting for about 80% of product cost and lacking remote-control capability. A possible mitigation route is a Chinese-hardware-plus-European-or-U.S.-software/control-system model. The order also references a pre-qualified whitelist mechanism through which firms could document that their controls use proven systems from compliant countries. The eventual filing process and implementation rules are therefore central, and the expert expects details potentially to be adjusted even after implementation; the order could also become a bargaining point in U.S.–China negotiations. The report uses the 2020 Executive Order 13920 as historical context. According to the expert, large Chinese power transformers largely stopped entering the U.S. market for about a year under that order, but a 345 kV, 600 MVA transformer tested at a U.S. laboratory had no identified issues and did not trigger lawsuits or penalties for the company. Following the later revocation, the company’s U.S. orders rebounded noticeably. This history supports the view that rule design and political developments could materially alter the eventual outcome. For Chinese suppliers, a complete U.S. ban could shift orders to other regions but may reduce profitability. The expert estimates the European market at about RMB80 billion and indicates that European gross margins and average selling prices could broadly resemble those in the United States because tight supply-demand conditions, rather than cost pressure, support pricing. The Middle East is presented as a less attractive offset because customers can introduce multiple suppliers and repeatedly pressure prices; an influx of suppliers displaced from the United States could further intensify competition there. JPMorgan also separates the Executive Order effect from data-center interconnection restrictions. Before the latest order, state-level restrictions or moratoriums had been manageable: new orders had been broadly flat over the prior one to two months, August growth was similar to the first half of the year, approved projects continued to be executed, and a small number of deliveries were delayed by roughly two weeks to one month. However, the report notes that slower future data-center construction would also slow power-equipment demand. Within the region, JPMorgan expects Korean power-equipment companies to gain market share and average selling prices if Chinese products are restricted, identifying LS Electric and HD Hyundai Electric as the best positioned among its coverage. It also flags possible spillover to Hitachi, CG Power and GE Vernova T&D India.

Analysis framework

JPMorgan combines an expert call with a major Chinese transmission-equipment executive, the stated scope of the Executive Order, historical comparison with the 2020 order, import and supply-chain context, and regional valuation comparisons. It traces the policy from covered equipment and order-book disruption through supply availability, lead times, pricing, alternative markets and likely effects on regional competitors.

Methodology notes

• Industry AnalysisSupply-demand framework

  Transformer supply availability, delivery lead times and pricing under potential restrictions on Chinese equipment.

  The report compares Chinese production capacity and about six-month delivery capability with longer European, Turkish and Mexican lead times to explain why lost Chinese supply could raise prices and delay projects.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Policy restrictions on equipment and control systems transmit through manufacturers, utilities, grid connection and data-center projects.

  The analysis links the order’s coverage of high-voltage equipment and control components to supplier order books, customer procurement decisions, equipment lead times and downstream grid interconnection.

• Event-Driven and Behavioral FinanceEvent-driven analysis

  Executive Order implementation and potential revisions following Department of Energy rules.

  The report treats the order, the 120-day rulemaking timetable, whitelist design and U.S.–China negotiations as event-driven variables that could change the ultimate business impact.

Asset mapping & comparison

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

• HD Hyundai Electric (267260.KS)

  Potential beneficiary of restrictions on Chinese power-equipment products in the U.S. market.

  Strengths

  JPMorgan identifies it as among the covered Korean companies best positioned to benefit from higher market share and ASPs.

  Comparison

  Positioned alongside LS Electric as a leading potential Korean beneficiary.

  Risks

  Benefits depend on the final implementation of the Executive Order and the extent to which Chinese supply is restricted.

• LS Electric (010120.KS)

  Potential beneficiary of restrictions on Chinese power-equipment products in the U.S. market.

  Strengths

  JPMorgan identifies it as among the covered Korean companies best positioned to benefit from higher market share and ASPs.

  Comparison

  Positioned alongside HD Hyundai Electric as a leading potential Korean beneficiary.

  Risks

  Benefits depend on the final implementation of the Executive Order and the extent to which Chinese supply is restricted.

• Hitachi (6501.T)

  Potential regional transmission-and-distribution spillover beneficiary.

  Strengths

  Included among companies that could see spillover from restrictions on Chinese products.

  Comparison

  Not identified as one of the two best-positioned Korean names.

  Risks

  Potential impact depends on final rules and demand conditions.

• CG Power Ltd (CGPOWER IND)

  Potential regional transmission-and-distribution spillover beneficiary.

  Strengths

  Included among companies that could see spillover from restrictions on Chinese products.

  Comparison

  Not identified as one of the two best-positioned Korean names.

  Risks

  Potential impact depends on final rules and demand conditions.

• GE Vernova T&D India Limited (GVTD IN)

  Potential regional transmission-and-distribution spillover beneficiary.

  Strengths

  Included among companies that could see spillover from restrictions on Chinese products.

  Comparison

  Not identified as one of the two best-positioned Korean names.

  Risks

  Potential impact depends on final rules and demand conditions.

Key data

• High-voltage scope69 kV and aboveEquipment at this voltage level is explicitly covered according to the expert; it represents more than 90% of the major Chinese manufacturer’s direct North American exports.
• Implementation timetable120 daysThe Department of Energy is expected to issue detailed implementation rules within this period.
• China share of U.S. overall transformer marketLess than 10% historicallyThe expert’s estimate for the overall market.
• China share of U.S. data-center transformer segmentAt least teens%+The expert’s estimate for high-voltage transformers used to connect data centers.
• Chinese large-equipment delivery timeAbout six monthsCited competitive advantage versus alternative supply regions.
• European transformer lead time2 to 2.5 years; some more than 30 monthsComparison used to show potential supply constraints if Chinese capacity is removed.
• European market size~RMB80 billionExpert estimate of a potential alternative market for Chinese suppliers.
• Recent delivery delaysAbout two weeks to one monthA small number of deliveries were delayed amid data-center interconnection restrictions, with limited overall impact.

Impact & implications

The report says the order could materially impair Chinese suppliers’ U.S. high-voltage export opportunities while increasing delivery times and pricing pressure for U.S. projects dependent on transformer supply. Korean suppliers may benefit through higher market share and average selling prices, while Chinese manufacturers may seek compliant control-system structures or greater European sales to mitigate the impact.

Risks

• Final Department of Energy rules, filing requirements and whitelist criteria remain unclear and may be adjusted.
• A full U.S. ban could reduce Chinese suppliers’ profits even if they redirect volume to other markets.
• Slower data-center construction would slow demand for power equipment.
• A shift of displaced suppliers into the Middle East could intensify price competition.

What to watch

• Department of Energy implementation details due within 120 days, including the filing process and whitelist mechanism.
• Whether pending, negotiated and recently signed U.S. orders proceed, are accelerated, delayed or cancelled.
• Changes in U.S.–China negotiations that could affect the Executive Order’s implementation.
• Transformer delivery times, urgent-order pricing and grid-connection delays if Chinese supply is restricted.
• Data-center construction activity and the impact of state-level interconnection restrictions.