React's virtual DOM is an implementation detail - its real power is in how easy it makes it to write composable components. If Web Components are ever a faster render target than the DOM, you can trust that ReactDOM will be upgraded to comply (in the same way that Ember aped React's virtual DOM as Glimmer).
That said, I have a feeling Web Components add complexity (and weight) to the render path. I doubt they will be faster than DOM diffing in the near term (although with any new web tech, there's always the possibility that they'll make available performance optimizations that can't be supported in the traditional DOM).
I agree there will probably be a performance lag for a while, but long-term I think the WC model wins out because it brings encapsulation and reuse into the formal suite of W3C specs.
That's not a big deal for any one web app, but a huge deal across web development in general.
That said, I have a feeling Web Components add complexity (and weight) to the render path. I doubt they will be faster than DOM diffing in the near term (although with any new web tech, there's always the possibility that they'll make available performance optimizations that can't be supported in the traditional DOM).