I don't get it. Barely any smaller and cant play all games. Are there really that many people who only play in handheld mode?
A household that already has one Switch doesn't have a real need for another Switch that can be connected to the TV. Switch Lite is an attractive option because there are hardly any Switch games that it doesn't play. It cuts out features that aren't needed for that type of consumer to begin with, and it comes at a great price.
Then there's also Japan which favors convenience over playing on a big screen moreso than the West, so a handheld-only or handheld-first Switch was always a necessity for that market in order to reach the full sales potential of the console.