it’s simply a technological innovation that has come along that is better than the previous one and has completely replaced it. It happens all the time in real life.
As a IRL engineer, that's something I can discuss well and disagree with on a fundamental level. Technology and development isn't monolithic, with all of it evolving along a single axis where everything new is better than the old. It's more like a tree with so many branches that differ from each other, that even if you understand the tree as a whole superficially, everything is still too complicated.
Your example of cars is perfect to show this. Over time combustion engines have became more efficient, with new technology substituting the old. Electric motors existed alongside combustion engines, having advantages over combustion (like starting torque and starting conditions), but never being able to substitute them for many reasons, mainly being battery technology that hadn't created batteries that had both high capacity and have long life cycle count until needing substitution. Neither of these problems stopped engine manufactures from adding starter engines (basically an electric motor) to combustion ones to start the combustion engine more easily.
Over time, battery technology improved, and batteries that match the design requirements to make electric cars appeared. Thanks to that, research on them started going forward, but even today, electric cars still can't substitute combustion cars depending on how the driver uses, mainly because gasoline fuel (and similar) has such a high energy density that "for how long can I drive after a full tank" isn't a problem to any driver. For electric cars, on the other hand, depending on traveled distance every day, an electric car isn't a feasible option because for every hour driving, you spend some time stopped charging. A salesperson going between nearby towns can't stop working for hours waiting on charges, and will never have a good experience on an electric car. Someone just using it to go to work and back home every day won't have problems, specially if they can leave the car charging while at work (if not, car will charge while they sleep, no downtime in usage). And this dichotomistic division between electric and combustion cars is also extremely shortsighted because it ignores hybrid cars, where you have an electric engine (a proper one, not a starter motor) working in conjunction with a combustion one, where the electric usually works during acceleration from full stop (where electric motors excel over combustion) and braking (using regenerative braking effect to recharge the internal battery while also reducing the need for the braking system to act), with the combustion engine working during the rest of the time (where combustion excels over electric due to energy density of fuel).
Even the usual fight for "electric only because it's better for environment" is shallow, because people ignore that the energy for the cars will come from somewhere. If all cars switched to electric only (all electric cars problems solved), there wouldn't be enough power capacity to recharge these cars. The new power industries necessary would either follow the same footprints they do today, or at most, a slight increase on renewables would be mixed together. For the US, EIA numbers indicate roughly 20% renewables, 18% nuclear, 19% coal, and the rest is gas. This means that whatever increase in power that would come from electric only on the US that would mean 80% of this added capacity would come from non-renewables (and thus, higher carbon emissions or similar problems). Europe's ratios are slightly better but not by much, but can't find a proper source to discuss, even if the point still stands.
There is no absolute best technology on real life. There are improvements, yes, but more often than not, it's more of a case of trade-offs.
Elite doesn't need to follow reality. Still, Elite has to gain from mimicking reality with the aspect of "no absolute solution to all problems, specific tools for specific problems". The original SCO was lagging behind default because jump ranges were way much shorter, making the use impractical on some cases. Hitting Titans for example, required so many jumps via thargoid controlled systems that it was impossible to start from a system where the number of jumps (and hyperdictions) were going to make the use of the SCO completely useless because the time gained in-system was eaten on travel (assuming you only travelled through systems where you can refuel). SCOs gaining a bit of jump range would fix this problem. SCO surpassing even double-engineered defaults also fixes that problem, and turns default FSDs into the IE equivalent of FSDs. If there is something that useless in the game, it's basically a waste of resources to keep it there.
FDev can work something interesting from that, and that's what I hope they will do. Even if SCOs substitute completely, Sirius corporation engaging on a war with Achilles Corporation and SCOs becoming the default modules on newly bought ships is the least they can do, and even that would be fine (opportunity lost of some nice balancing tweaks, but it's their game, they make the decisions).