If the Model 3 had been available when I was buying, I would have definitely cross shopped and I probably would have bought a Model 3 even though I like the Model S better.
The Model S is not a typical $100K car. All other cars in that price range compete for the attentions of a certain subset of wealthy people who want over the top luxury or the peak of performance. These cars are to the car market what MacIntosh audio equipment is to audiophiles. It's for those who are willing to pay through the nose for the best.
There have always been quite a few people who could afford $100K cars, but didn't see the point. They don't want a head turner, or the ultimate in luxury, or the ultimate in performance. They want decent transportation that will get them from point A to point B with some creature comforts, but it doesn't have to be over the top, nor do they want attention. These are the people buying Camrys, Outbacks, and RAV4s. They see a $100K car as a waste of money.
Some of these people were upsold into the Model S when it was the only thing available. A study done around 2015 found that a large percentage of Model S owners had never owned a car worth more than $60K. The last car I bought new before my Model S cost $21K.
I don't know the size of the $100K luxury market before the Model S, but I'm sure Tesla grew the segment quite a bit by drawing in buyers who had never given the segment a second thought. The only reason the Model S was in that segment to begin with was because it couldn't be made and sold for $40K-$50K at the time. Now it can.
Now that the Model 3 is available Tesla has needed to rethink the Model S. Is it going to be an exclusive $100K car, or is it going to be a modest step up from the Model 3? It can't continue to be a $90K+ step up from the Model 3 lacking features of the Model 3.
By sharing as much as possible with the Model 3 and making other parts similar, they could make a Model S that would sell for about $10K more than the Model 3 at profit. It would have the advantage of being bigger, better range, with a hatchback, but otherwise very similar. That might keep the Model S production numbers up.
Or they could go the route and compete with the European luxury cars in features. Ultimately I think that would be a mistake. That segment is shrinking back to the size it was before the Model S blew it up and the Europeans are beginning to roll out their own EVs. Tesla will still beat the Europeans on range for several years, but on luxury, the Europeans can just do it better.
Elon is by nature rather spartan. He has a lot of trouble wrapping his head around all the gadgets in European luxury cars. He had trouble embracing the concept of a standard console in the center of the car. The Model S didn't get it until it had been in production almost 4 years.
Tesla's strength is delivering convenience, performance, range, and electronic features, but not all that strong in luxury. They are better suited for aiming at the center of the market instead of the top end. Let BMW and Mercedes concentrate on making massage chairs on wheels and play to Tesla's strengths.