GM is defending its design for the Volt plug-in hybrid vehicle after a study out of Carnegie Mellon University (CMU) slammed the design, saying that it’s not economical. (Plug-ins are hybrids with batteries that can be recharged by plugging them in.)

We’ve previously reported on the CMU study. It says that hybrids with large batteries designed to provide 40 miles of electric range before an onboard generator kicks on to recharge them–that is, vehicles like the Volt–cost too much for the gas savings to compensate. On the other hand, hybrids with smaller batteries with short electric-only ranges make economic sense, provided they’re recharged frequently.

The finding could have policy implications. The recent stimulus bill includes tax credits for plug-in hybrids. The study could suggest what kind of hybrids the government would be wisest to support.

Not surprisingly, GM disagrees with the study. In a blog this week, Jon Lauckner, GM’s vice president of global program management, takes it apart. Basically, he says that the battery pack will cost a lot less than the CMU researchers guess it will.

At its core, the study’s conclusion is based on an incorrect assumption of the cost of battery packs. In the CMU study, the so-called “base case” used a Lithium-Ion battery cost of $1,000 per kWh ($16,000 for a 40 mile Volt pack) that was cited in earlier academic articles. The problem is this cost is many hundreds of dollars per kWh higher than the actual cost of the Volt pack today. Moreover, our battery team is already starting work on new concepts that will further decrease the cost of the Volt battery pack quite substantially in a second-generation Volt pack. Unfortunately, the impact of dramatically lower battery costs (to $250 per kWh) was treated only as a “sensitivity” in the CMU study when it probably should have been highlighted as THE critical element that would dramatically change the cost-effectiveness of plug-ins with greater electric-only range.

But then he does something odd. He says that the study should have accounted for the tax credits for plug-in hybrids available through the stimulus bill. He implies that these credits, along with cheaper batteries, will make the Volt affordable. But if the Volt relies on government incentives to be economically viable, is it really economically viable?

The key question is whether the large-scale production of the Volt and other plug-ins that the credits are meant to prompt will bring down battery costs through economies of scale, and bring them down enough that these vehicles can make sense without the credits.