On August 26, 2026, President Trump signed Executive Order 14420, declaring a national emergency over the security of the U.S. bulk-power system. The order authorized the Secretary of Energy to restrict the "acquisition, importation, transfer, or installation" of foreign-produced grid equipment deemed a national security risk.
The covered equipment list included substation transformers, grid-connected inverters, high-voltage circuit breakers, industrial control systems, and — for the first time — battery energy storage systems (BESS). The order applies to equipment connected to transmission networks rated at 69 kilovolts or above, explicitly excluding local distribution networks.
The intent was to reduce U.S. dependency on Chinese batteries. China supplies roughly three-fifths of the lithium-ion batteries used in U.S. grid installations.
But the order contains a structural loophole — one that is already being tested by an American automaker using Chinese technology.
The Scale of the Dependency
The U.S. energy storage market is booming. In the second quarter of 2026, the country installed a record 20.2 gigawatt-hours of battery storage capacity, a 108 percent increase over the previous quarter. The Solar Energy Industries Association projects 71 gigawatt-hours of installations in 2026, roughly 20 percent more than 2025.
That growth is built on Chinese cells. According to S&P Global data, China accounted for 66.5 percent of U.S. lithium-ion battery imports in the second quarter of 2026, up from 60.3 percent in the first quarter. For stationary storage specifically, China's share of imported cells runs between 50 and 60 percent. The largest suppliers — CATL, BYD, EVE Energy, REPT, and Gotion — provided the majority of grid-scale battery cells installed in the U.S., including systems assembled by Western vendors.
The order does not ban these companies by name. It covers equipment "designed, developed, manufactured or supplied by an entity connected to a covered foreign jurisdiction." China is among the jurisdictions covered. But the Energy Department must make two determinations before restricting a transaction: first, that the equipment has the required foreign connection; second, that the transaction creates an "undue or unacceptable security risk."
That two-step process is where the loophole lives.
The Licensing Structure
Ford Motor Company is building a $2.5 billion battery plant in Marshall, Michigan. The facility is wholly owned and operated by Ford. It employs an American workforce. It produces lithium iron phosphate battery cells using technology licensed from CATL.
Ford's argument is straightforward: the plant is an American enterprise operating on U.S. soil, using American labor, producing American-made batteries. CATL provides licensed technology and related services. It does not hold an equity stake. It does not own the factory.
That structure differs from a conventional joint venture, where a Chinese company owns part of the U.S. operation. Ford has described its agreement with CATL as "a limited technology-licensing and services agreement, not a joint venture or foreign-owned manufacturing operation." According to Ford's characterization, CATL provides licensed technology and related services, not day-to-day operational control.
The question is whether that distinction survives Executive Order 14420.
The order reaches beyond where equipment is assembled or who owns the factory. It also covers "critical components, software, digital services, maintenance and remote-access capabilities linked to covered foreign entities." Ford's batteries use CATL technology. Whether they clear the order's test depends on how the Energy Department defines "linked" and how much continuing CATL involvement is deemed acceptable.
The 69 kV Threshold
The order's applicability is also constrained by voltage.
The restrictions apply to the bulk-power system — transmission lines rated at 69 kilovolts or above. Local distribution networks are excluded.
That threshold creates ambiguity for battery storage projects. Sungrow, a global leader in solar inverters and storage systems, told investors that U.S. distributed solar-plus-storage projects connect at 13.8 kV, while large utility-scale projects connect at 34.5 kV and then step up to 69 kV or above. "From which node the restriction begins is currently unclear," the company said.
The ambiguity is not a drafting error. It is a deliberate feature. The order establishes a high-intensity regulatory framework and leaves the enforcement boundary to be determined through implementing rules and subsequent negotiation. The Energy Department has 120 days — until Christmas Eve — to issue those rules.
For project developers, that timeline creates a financing problem. As one attorney put it, the simplest remedy is: "if you haven't signed a contract to purchase Chinese equipment, don't do it." But for projects already in construction, or for developers using Ford's licensed-technology batteries, the answer is not yet clear.
The Tax Credit Dimension
The executive order is not the only mechanism restricting Chinese batteries. The tax code adds a second layer.
Under the One Big Beautiful Bill Act, projects seeking the Section 45Y production credit or Section 48E investment credit must meet domestic content requirements. Starting in 2026, at least 55 percent of the material costs for new storage projects must come from suppliers outside China and other restricted countries. Projects that receive "material assistance" from a prohibited foreign entity are barred from claiming the credits.
The combined effect is a two-track system. A project using Chinese cells may still be built and connected to the grid — if the Energy Department determines it poses no unacceptable risk. But it will not receive federal tax credits. The economics of battery storage in the U.S. depend heavily on those credits. A project without them is a project with a different business case.
Ford's batteries face the same test. If the Energy Department determines that CATL's licensed technology constitutes "material assistance" from a prohibited foreign entity, the batteries lose tax credit eligibility. If it does not, they retain it. The distinction will be determined in the implementing rules.
The Enforcement Gap
The order's most consequential feature is its treatment of installed equipment.
It authorizes the Secretary of Energy to force utilities and project owners to "identify, isolate, monitor, secure, disconnect, replace, or remove" foreign-produced equipment that has already been installed. That retroactive authority is unprecedented in U.S. grid policy.
But it is also impractical at scale. China supplies three-fifths of the batteries in U.S. grid installations. Removing them would require replacing gigawatts of storage capacity. The order acknowledges this by instructing the Energy Department to consider "grid reliability, alternative equipment supply, and continuous power supply" when exercising its removal authority.
The result is a framework that grants broad authority while constraining its exercise. The Energy Department can act against specific projects. It cannot act against the entire installed base without causing the grid reliability problems the order is meant to prevent.
What the Loophole Means
The Ford-CATL arrangement is not a loophole in the sense of an unintended drafting error. It is a structural feature of the order's design.
The order targets "foreign-produced" equipment, not foreign technology. It covers equipment linked to covered entities, not technology licensed from them. It creates a prequalification process that allows suppliers to demonstrate compliance, rather than banning them outright.
That design creates a path for U.S. companies to use Chinese technology while maintaining American ownership and control. Ford's Michigan plant is the first test case. If it qualifies as American-made under the implementing rules, other U.S. manufacturers may follow the same model — licensing Chinese technology, building American factories, and selling into utility projects that would otherwise be closed to them.
For Korean battery makers like LG Energy Solution, Samsung SDI, and SK On, that outcome would be unwelcome. The order appeared to give them an opening against their Chinese rivals. Ford's licensing model could close it.
For the policy's stated goal — reducing U.S. dependency on Chinese grid equipment — the implications are more complicated. The dependency on Chinese battery cells would decline. The dependency on Chinese battery technology would remain.
The order's 120-day implementing period will determine which dependency the policy actually addresses.
Sources: Executive Order 14420 (August 26, 2026); Shanghai Metals Market analysis via 10jqka (August 28, 2026); Sungrow investor relations response via Shenzhen Stock Exchange Interactive (September 4, 2026); Canary Media (September 10, 2026); The Investor (September 15, 2026); Bloomberg (September 1, 2026); S&P Global (August 24, 2026); IndexBox (May 2026); Solar Energy Industries Association and Benchmark Mineral Intelligence (September 2026); Utility Dive (September 1, 2026); Davis Wright Tremaine analysis (February 20, 2026).
Disclaimer
The information provided in this article is for general informational and educational purposes only. It does not constitute legal, financial, or professional advice. The author and publisher are not responsible for any actions taken based on the content of this article. Readers should consult qualified professionals for advice specific to their situation. All trademarks and references to third-party products, services, or organizations are the property of their respective owners. The performance data and benchmarks discussed are based on specific research studies and may not generalize to all use cases or environments. As of the publication date, the AI landscape continues to evolve rapidly, and readers should verify current information independently.
Limitations
This analysis is based on reporting and public data available as of the article date; figures may be revised as sources update.
Battery import shares come from third-party analysts; estimates may be revised.
The executive order's implementing rules are not final; covered scope may change.
Tax credit and domestic content treatment depends on rules not yet finalized.
Company descriptions rely on public statements, not internal documentation.
Regulatory interpretations may evolve; verify current status before acting.
The U.S. energy storage sector is changing quickly; claims can become outdated.
Sources
- Executive Order 14420 (August 26, 2026)
- Shanghai Metals Market analysis via 10jqka (August 28, 2026)
- Sungrow investor relations response via Shenzhen Stock Exchange Interactive (September 4, 2026)
- Canary Media (September 10, 2026)
- The Investor (September 15, 2026)
- Bloomberg (September 1, 2026)
- S&P Global (August 24, 2026)
- IndexBox (May 2026)
- Solar Energy Industries Association and Benchmark Mineral Intelligence (September 2026)
- Utility Dive (September 1, 2026)
- Davis Wright Tremaine analysis (February 20, 2026).
The information provided in this article is for general informational and educational purposes only. It does not constitute legal, financial, or professional advice. The author and publisher are not responsible for any actions taken based on the content of this article. Readers should consult qualified professionals for advice specific to their situation. All trademarks and references to third-party products, services, or organizations are the property of their respective owners. The performance data and benchmarks discussed are based on specific research studies and may not generalize to all use cases or environments. As of the publication date, the AI landscape continues to evolve rapidly, and readers should verify current information independently.
Limitations: This analysis is based on reporting and public data available as of the article date; figures may be revised as sources update.; Battery import shares come from third-party analysts; estimates may be revised.; The executive order's implementing rules are not final; covered scope may change.; Tax credit and domestic content treatment depends on rules not yet finalized.; Company descriptions rely on public statements, not internal documentation.; Regulatory interpretations may evolve; verify current status before acting.; The U.S. energy storage sector is changing quickly; claims can become outdated.