Switch Lite doesn't connect to the TV for business reasons. Of course Nintendo could have made it a hybrid device as well, but that wasn't the goal of this revision. Switch Lite is not meant to be an option with a smaller screen, rather it's a complementary device for the Switch family of consoles. It's all about selling Switch to people who either never intend to play video games on a TV in the first place, and people who already have a hybrid Switch that occupies the TV in their household and are looking to buy another Switch for a family member.
Giving the Switch Lite less features allows Nintendo to hit a lower retail price while at the same time the handheld-only device doesn't compete with the hybrid Switch. It results in great positioning of the two different SKUs which is favorable for marketing and perceived value.