You can sysupgrade with the combined EXT4 image just fine. Unlike 'real' embedded devices, there's no need for a factory image which pulls certain tricks to convince the manufacturer firmware that it's indeed flashing a valid (manufacturer issued) image.
I use a 16 GB pendrive that has OpenWRT installed with the SquashFS file system sometimes, in order to revert to the default state. Other times I use Ext4. I made my own firmware with the packages I need with Image Builder. I install the .img file with Rufus (in Windows) and DD in Linux.
What image are you installing? What do you want me to share? If you want, I can build your image file so you can install it. Or else, use this website to build it online.