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Hybrid powertrain has been proven to be an effective fuel-saving technology in commercial vehicles, but many hybrid commercial vehicles still use conventional diesel engines, resulting in limited fuel savings. The main purpose of this study is to enhance the thermal efficiency of a dedicated hybrid diesel engine focusing on the characteristic operating conditions. Via fundamental thermodynamics process analysis of internal combustion engine, steel piston with high compression ratio, air system involving two-stage turbocharger(2TC) with an intercooler, and late intake valve closing(IVC) timing are proposed to improve the thermal efficiency of the engine. Experimental results show that high compression ratio and lower thermal conductivity of the combustion chamber surface lead to lower heat release rates, requiring optimization of piston profile to accelerate the mixing rate. Besides, high compression ratio also leads to higher mechanical losses.