I wonder if
@wiking has anything to add. He seems a knowledgeable person with German weapons.
Ha, I've been watching, but knew nothing about this gun, was hoping someone else did. From what I gather than cost was high and it was complex, so unless someone has other info I'm not very helpful.
I do have a book on German assault rifles in German, I got to brush off my really rusting reading skills and see what I can find. I'm guessing that the caliber shift was too much for them to really consider shifting over, as it meant the entire production line for 7.92 ammo was now useless if they adopted it and fielding multiple small arms calibers was problematic. Had it used the 792 kurz like the prototype StG44 perhaps it would have had more of a shot. But the StG44 didn't get mass produced until it was so late in the war that it was just necessary; they cost of the STG did not endear it to the army, as it was nearly as much as the existing Kar-98. The StG45 was a huge cost savings and simplified the design immensely, so unless a semi-auto could offer major cost savings, which the M35 probably couldn't then it is not really that useful. Of course if they'd have realized that the combat potential was that much better than the existing bolt action (I guess they were surprised the StG44 was as beneficial as it was) they would have invested in it and making it cheaper.
From what I've read the G-41 was a mess and even it's replacement, the G-43, had problems. Both were copies of the SVT-40, which IIRC had it's own share of issues.