I can confirm that changing the #brave-horizontal-tabs-update to enabled does make the tabs a reasonable size, but then it uses the (what I find to be) very ugly pill view, and it doesn’t work with many themes. I had that flag disabled, because the old style actually worked, and didn’t take up huge amounts of vertical real-estate.
So while enabling that flag is a work around, it’s not a fix.
This needs to be fixed, not just worked-around.