That's perfectly true in a mature market where you can differentiate between vehicles in terms of performance, levels of comfort, size, bells and whistles.
Tesla isn't at that point. They don't need to maintain the S above the 3. You don't see C class killing the S class because there isn't any chance that they can swap places. You don't expect the new C to outgun the S. Not now. The classes are fixed - in both senses of the word.
Motor performance and the Gigafactory do allow for that possibility in the short term for Tesla's 3 and S. It would have been more obvious with the X and the S, with the X being first to the punch with Dual Motor. (Thanks, Falcon-door-supplier-who-couldn't)
Now, will the S benefit from/inherit a better battery? Of course. But the ultimate limiter on battery size/ total range will be Supercharger power level/dialback rates. It is in Tesla's interest to push all models to be the best that they possibly can be at a particular price point, over maintaining some sort of model hierarchy.