The solution is to let it run for 20+ minutes until it finishes, and NEVER close Xcode. If/when Xcode crashes, you must wait another 20 minutes. I am sitting here doing nothing instead of working because my watch is being prepared for development... again.... sigh..
Apple, if you're set on forcing this every time, at least make the process fast. Takes 20+ minutes on a brand new M1 MacBook.
This issue is wasting millions of hours of developers time worldwide. Please fix.