This would be for when you "can't" build a new ship of the same size.

For example if I have't researched medium Hull size, yet need to upgrade my initial survey ship. I already have the medium hull size I just want to add(or swap out) some components.

He's not talking upgrading like in galciv. But more like panzer general. Where instead of tech research and customization you just pay to upgrade your unit which i like tech research better. You could compromise where instead of getting what you make. You have several levels of which item you research where your ships has certain built items which you pay for better versions. Kind of redundant. Never been done for custom built ships i think.

If you can't build the hull you salvaged, your shipyards don't know how to upgrade one either.  Neither do the invisible ship upgrade barges that upgrade your ship out in space for you. You are just going to have to face it and teach them the new hull tech.  It's a pain, but what's a poor Galactic conqueror gonna do?

Maybe the devs would buy this idea if it was separated from the existing upgrade (by mysterious universally available nanotech or invisible space barges)?

I vote for a station-requiring Refit command, perhaps with a tech line of its own.

Basic function(s) cut costs for upgrading ships when you do them at an equipped facility: yards by default, bases with necessary module(s), planets with necessary improvement.

Higher functions enable reverse engineering, the component swapping described in OP, and higher returns on scrapping hulls you built...