We are currently reworking the interface between the engine and PhysX which will address this later on.
Grandchildren (C in an attachment hierarchy of A < B < C) that are auto welded have issues related to overlap events when moving via physics. They tend to overlap later than they should. This does not affect their collision otherwise as can be seen in the provided example project.
There's no existing public thread on this issue, so head over toAnswerHub just mention UE-60135 in the post.