Not everyone will do side projects - and that's fine - but passionate engineers will have something to get excited about without needing to think about it.
I went to university because I had an interest specifically in games, media and HCI. I could talk about my interest in those things fairly easily. Yet the far majority of jobs in my area are oriented around web development in its most basic, CRUD form. More often than not, I can almost detect a hint of snobbism from the other party's side whenever I lightly hint at the fact I don't really care for web development in my free time, but recognize overlap between various fields.
In extreme cases, I see the above on stack level as well, which is even worse. As if preference in stack defines who should work where, when a few stack combinations heavily dominate the market.
I do think passion in a more abstract sense is a strong signal thorough. Such as passion for learning new things, solving complex problems, investment in collective outcomes, etc