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I think your fundamental assumption is based on "possible" performance. I would argue that required performance has flattened over the last few years. A nexus 4 is a perfectly serviceable phone still.

I think as technology improves, the advantages of modularity with trump any loss of performance.

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More battery than generic performance. Performance may have improved but components haven't shrunk much and batteries definitely haven't shrunk.

You can likely reclaim some space by making a really tiny chipset, but batteries and screens combined are over 70% of your phone's total size. Project Ara makes components larger (due to connectors and housing), so you need to find space from somewhere, and there isn't a lot to be taken from most components (they aren't very large already).

Sure... bigger batteries will be bulkier, but they will at least be an option. My Nexus 5 battery sucks and there is nothing that can be done.

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