T.G.S. Transportation: Battery Electric or Hydrogen? Custom Case Solution & Analysis

Evidence Brief: TGS Transportation Case Data

Financial Metrics

Operational Facts

• Fleet Composition: 250 Class 8 heavy-duty trucks operating in drayage.
• Duty Cycle: Two shifts per day; 10 to 12 hours per shift; 150 to 200 miles per day.
• Refueling Time: Diesel takes 10 minutes; FCEV takes 15 to 20 minutes; BEV requires 4 to 8 hours for full charge.
• Weight Penalties: BEV battery packs add 5000 to 8000 pounds, reducing legal payload capacity.
• Geography: High-traffic corridors between Port of Los Angeles, Port of Long Beach, and inland warehouses.

Stakeholder Positions

• David Gormley: Focused on regulatory compliance deadlines and long-term fleet viability.
• Peter Gormley: Concerned with operational downtime and the impact of charging on driver productivity.
• CARB: Mandating 100 percent zero-emission drayage trucks by 2035.
• Drivers: Independent contractors and employees requiring high vehicle uptime to maintain earnings.

Information Gaps

• Future price per kilogram of green hydrogen at the pump in 2027.
• Utility company timeline for upgrading grid capacity to TGS headquarters.
• Resale value or secondary market data for used zero-emission trucks.
• Reliability data for FCEV components under heavy port duty cycles.

Strategic Analysis

Core Strategic Question

TGS must determine which zero-emission technology transition path satisfies California Air Resources Board mandates while preserving the operational throughput required for two-shift drayage services.

Structural Analysis

Supplier Power: High. TGS is moving from a commoditized diesel market to a concentrated market for batteries and hydrogen. Electricity providers like Southern California Edison hold monopoly power over infrastructure timelines, while hydrogen suppliers are currently limited in number.

Value Chain Impact: The transition shifts the primary operational bottleneck from fuel cost to vehicle downtime. BEV technology creates a significant gap in the value chain during the 4 to 8 hour charging windows, effectively eliminating the possibility of a two-shift operation without doubling the fleet size.

Strategic Options

Option 1: BEV-First for Short-Haul Shuttles

• Rationale: Lower upfront cost per unit and more mature charging technology.
• Trade-offs: Requires significant investment in on-site charging infrastructure and limits trucks to single-shift or short-radius work.
• Resource Requirements: 5 million dollar capital expenditure for grid upgrades and charging ports.

Option 2: FCEV-First for Long-Range Drayage

• Rationale: Refueling times mirror diesel operations, allowing for continuous two-shift utilization.
• Trade-offs: Higher vehicle cost and dependence on an immature hydrogen fueling network.
• Resource Requirements: Utilization of maximum HVIP vouchers and long-term fuel supply agreements.

Preliminary Recommendation

TGS should adopt a dual-track strategy with a heavy bias toward FCEV. BEVs should be limited to 20 percent of the fleet for specific short-haul routes where mid-day charging is possible. The remaining 80 percent of the fleet must transition to FCEV to maintain the high utilization rates necessary to service port contracts. FCEV is the only technology that preserves the current business model without requiring a 1:1 increase in truck-to-driver ratios.

Implementation Roadmap

Critical Path

1. Month 1-3: Submit utility load study to Southern California Edison to determine maximum charging capacity for the current facility.
2. Month 4-6: Secure 10 FCEV pilot units through the HVIP program to test reliability on high-priority port routes.
3. Month 7-12: Finalize a private hydrogen fueling partnership to bypass public station congestion.
4. Year 2-5: Systematic retirement of diesel units, replacing them with FCEVs at a rate of 50 units per year.

Key Constraints

• Grid Readiness: Local utility upgrades often take 24 to 36 months, which may delay even a small BEV pilot.
• Hydrogen Availability: If public hydrogen stations remain unreliable or expensive, the FCEV fleet becomes a stranded asset.

Risk-Adjusted Implementation Strategy

The plan assumes a 20 percent failure rate in early-stage ZEV components. TGS will maintain a 10 percent diesel reserve fleet as long as regulations permit to ensure service continuity during unexpected ZEV downtime. Implementation success depends on securing fixed-price hydrogen contracts to stabilize operating expenses against volatile electricity peak pricing.

Executive Review and BLUF

BLUF

TGS must prioritize Hydrogen Fuel Cell Electric Vehicles (FCEV) over Battery Electric Vehicles (BEV) to maintain its two-shift operational model. While BEVs offer lower initial costs, the 4 to 8 hour charging requirement destroys the asset utilization necessary for drayage profitability. FCEVs offer a 15 to 20 minute refueling time, essentially mimicking diesel performance. TGS should utilize HVIP subsidies to offset the 500000 dollar unit cost and focus capital on securing hydrogen fuel supply rather than building extensive electrical charging infrastructure that the local grid cannot yet support. Transitioning to BEV at scale would require doubling the fleet and headcount to maintain current throughput, a move that is financially and operationally untenable.

Dangerous Assumption

The analysis assumes that green hydrogen will reach price parity with diesel or electricity on a per-mile basis within the next five years. If hydrogen prices remain at current levels of 15 to 25 dollars per kilogram, the operational cost will exceed the revenue generated per haul, regardless of subsidy levels.

Unaddressed Risks

• Weight Limitations: Neither technology addresses the 5000 to 8000 pound weight penalty. This risk could lead to a 10 percent reduction in revenue per load for weight-sensitive cargo, which has not been fully modeled.
• Technological Obsolescence: Rapid improvements in solid-state batteries could make current FCEV and BEV investments obsolete before the end of their 7-year depreciation cycle.

Unconsidered Alternative

TGS could shift its business model from asset-heavy to asset-light by transitioning to a brokerage-only model. By requiring independent contractors to own and operate the ZEV units, TGS would shift the massive capital expenditure and infrastructure risk to the drivers while maintaining its port contracts and customer relationships.

Verdict

APPROVED FOR LEADERSHIP REVIEW