The reason might be the size of the recovery partition.
Every Android device has a recovery partition that contains the whole OS, and this partition gets copied to the working partition when you do a factory reset.
Maybe because they set up the recovery partition to be too small, it cannot fit the newer version of Android. That would explain the "storage" issue they have with this device.
Still a total shame from Sony to not foresee this kind of issue.
At the launch of the Xperia 10 VI, Sony promised that the mid-range smartphone would receive three major Android updates. However, that is no longer the case, allegedly due to insufficient storage. Users will not receive any compensation.