Finally, this was the first time in over 20 years of light rail use in Switzerland that I experienced this.
Though there's usually replacement trains for those use cases. The main stations have a standby train (Dispozug) ready to immediately replace any train that's cancelled or delayed (and avoid propagating delays).
https://twitter.com/SBBTrainDriver/status/150809526141493657... (is an example, the driver spends 3h+ just waiting in the train in case it needs to replace another train)
It does stop at all stops unless it's really late and passengers might as well get out at a stopover station and transfer trains, however if it's sufficiently delayed it may be put on side tracks to let other trains pass to prevent a ripple effect, delaying the train even more to keep the rest of the system working well.
The rail company has a government-imposed punctuality target and their result is used in the calculation of how much money they get from the government the next year, i.e. the usual "once a KPI becomes a target..."