Got this for very heavy train base idea, and it's adorable, I love how they look, the modeling is A+ grade. However for game play I do have two suggestions for game play to make the mini trains distinct from normal engines, because size aside there a bit interchangeable. For my base i went with mini trains for looks not because I thought they would be the better mechanical decision.

first it would work better as a red tech level technology rather then green+red. So it is to normal trains what a yellow belt is to a red one. Maybe with the addition of some teir 1 rails to allow you to truely go mad with trains even in the immediate crash. maybe the use wood and iron with a speed cap? or they can't use normal larger cars/artillery wagons as a trade off?

second: there's an 3 year old mod 'tiny trains' that make the trains half the size, so they go from 6x2 to 3x1. The engines and cars in this mod would be great if given that treatment to make them proper 'narrow gauge' or 'industrial' trains to go alongside the faster 'full gauge' base game trains. That would give the two trains different niches. The big trains can move faster between patches with large carry capacity cars, but the narrow guage ones are better suited to operating within the confines of a factory due to the smaller rails, exactly like IRL narrow gauge industry trains. That would mean changeing the models and there so charming I might risk making them look 'off', so i get that being too tricky to implement alongside the rail issues.

I second this concept of red science only trains. In answer to the issue of tech tree and steel, how about having these trains run on iron rails? Rails could use Iron sticks for the rails, wood for the sleepers, and stone for the bedding.

The wood option is logistically challenging so maybe it could be skipped although it would provide additional uses for wood.

Normal trains should not use Iron rails, so perhaps these rails would not be able to integrate with normal rails - not sure on how you would handle joining two rail types?

just a note, i'm not sure why, but the mini trains locomotive has this issue where when you set up schedules for train stops, for whatever reason, it deletes one or more stops. I hope this can be fixed.