NOTE: It is very true that if the internal drive on an M1 Mac dies, the machine cannot be booted from an external drive! Also, if the boot partition becomes file corrupted, you also cannot boot from an external drive. However, in this case, a second Mac can be used with Apple Configurator2 to Revive the firmware and boot partition.
From this article:
https://bombich.com/blog/2021/05/19/beyond-bootable-backups-adapting-recovery-strategies-evolving-platform
"An Apple Silicon Mac won't boot if the internal storage has failed
.......I contacted the authoritative experts within Apple in April and they unambiguously confirmed that that is the actual result – you can't boot an Apple Silicon Mac if the internal storage has died....."
With that said, you can either create a bootable drive by either cloning or doing an external install. Also note, any macOS installation besides the current installed version running will alter the internal boot/recovery volume on the internal drive on an M1 to the version of macOS installed, whenever it os on an external drive or on an internal partition or container volume group. The result, if you run Recovery to restore the original macOS install, what ever version of macOS is configured in Recovery will be the one installed.
Example, you have Big Sur installed on your internal drive. You create an external bootable Monterey. If trying to re-install macOS on your internal, it will install Mattered and not Big Sur.
So, with an M1 Mac, some caution is required when creating a second bootable system,