When it comes to battery packs for plug-in hybrids, smaller is better, according to new research from Carnegie Mellon University. Led by engineering professor Jeremy Michalek, the study authors found that plug-ins with battery packs large enough for only about seven miles of all-electric range can simultaneously reduce petroleum consumption, greenhouse gas emissions and drivers’ expenses. By contrast, vehicles with battery packs hefty enough for at least 40 miles of electric travel — such as GM’s Chevy Volt — will cost too much to compete with regular hybrids on price, according to the study, which will appear in the journal Energy Policy. (Hat tip Bloomberg)

For plug-in car makers, the upside of the study is that vehicles with smaller battery packs — designed for urban driving and more frequent charging — may prove economically competitive with not only hybrids like the ToyotaPrius, but also conventional vehicles in a range of scenarios. Michalek explained yesterday in a release about the study:

If gas prices go up or battery prices come down, plug-in vehicles will be more competitive across the board, but the small battery packs remain best on cost, and new charging infrastructure could increase the number of drivers who can benefit.

While Michalek’s findings may be reassuring for a company like Better Place, which wants to provide the infrastructure for those frequent charges, they paint a gloomy picture for GM. Whatever the Chevy Volt can do for the automaker’s standing with federal purse-holders and its reputation as an innovator, GM faces significant hurdles to turn the car into a moneymaker if it wants to price it for the mass market.

In itself, that’s hardly a revelation. GM has said that it expects to lose money on the first generation of Volts. With advances in battery technology and increased production volume, the company hopes to turn a profit on the car by 2020.

Michalek said in yesterday’s release that batteries will have to become “very cheap” for plug-ins with larger battery packs to save drivers money. GM gets that. It has grand plans for battery R&D in partnership with the University of Michigan and maybe some help from the government. As Michigan’s Ann Arbor Business Review put it this morning, “This all portends well for the future, especially if you ignore GM’s growing cash crisis and the looming specter of bankruptcy.”