Okay, I found a solution.
The problem is that the material is defined outside the visual Xform.
In the non-instanceable USD the materials are shared and placed in a looks folder. The generated instanceable_meshes USD has the same structure but the reference does not work unless the material is inside the visual Xform that is using it.
Here is my working example:
ur5e.zip (5.4 MB)
However, it would be great if the convert_asset_instanceable script could automatically copy the materials in their corresponding Xforms.