Why not? Cars are already modelled in several levels of detail depending on their distance from you, tracks as well have details that only pop-in when needed, although that is not usually noticeable these days. Have you played a PC Game on the lowest settings recently either? They look pretty awful compared to the highest settings usually.
As for dynamic time/weather then absolutely compromises would have to be made but not that extreme. PD are a first party dev with more knowledge of the system than SMS, and they also have a higher budget.
Creating multiple LODs, art assets, and optimizing them to give the best visual representation is one of the most time consuming parts of game development that requires a bunch of trial and error. PD doesn't make "future-proof" models of the tracks/environments with tessellation like they do with cars either. Let's even revisit a quote from Kaz regarding their game development practices.
Kaz: "Because of their natural complexity, the most difficult things to model in the environment are trees. Kazunori said it is a special field and requires a lot of creativity from the 3D artists; they have to make the trees as realistic and believable as possible without creating too much load on the console’s limited resources."
"The Jaguar Vision GT 3D model, as received from Jaguar’s designers, contains over 7 million polygons. The challenge for Polyphony’s 3D artists, then, is to figure out how to reduce the number of polygons while retaining as much detail as possible. Kazunori explains this is a very difficult process which cannot be automated. Only humans can identify the exact shapes which are most important to the car’s appearance.
To give you an idea of the immense amount of work this requires, the Jaguar Vision GT was reduced from 7 million to 70,000 polygons for the game. From there, even more models with less detail need to be produced by hand."
It took Polyphony
4 years to release GTSport after GT6, a GTSport that was very, very barebones. Then it took Polyphony another 2 years after GTSport to add static rain graphics to a SINGLE track with the same simple wet physics, then even more months of waiting until they released rain graphics for a whopping TWO more tracks until they just called it quits... And now we should believe PD is somehow capable of creating two different art assets that take advantage of each console with a big generational gap in performance?
Making art assets for PS5-tier graphics isn't just about "popping" them in more on PS4. If you haven't noticed, GTSport already has a bunch of noticeable LOD pop-in for vegetation, especially noticeable on Monza, La Sarthe, Saint-Croix, and this is for art assets PD
designed for PS4. PC game assets are actually made with the lowest common denominator in mind first, which is consoles, then they scale resolution and draw-distance up or down based on that asset. The quality of each environment model prop are actually extremely similar, if not outright the same, whether you play on an RTX 3080 or on a PS4, because these games were made with PS4 / XBO generation in mind first.
There is rarely a modern game that was made only for PC first without any plans of getting them to also work on last-gen consoles. And the last game that tried to make a PC-first oriented approach is Cyberpunk 2077, and now the console ports repeatedly crash to a black screen while also having numerous visual bugs to the point where Sony banned Cyberpunk from being sold on PSN. At least the PC version was praised I guess.
This is what will happen. PD will create models and art assets that work on the weakest console, then they just up-res it for the PS5 port. It will look like GTSport with ray-traced reflections barring some improved draw distance. Environmental quality of actual art assets remain the same on both platforms.