Just tested booting a MacBook Air (Retina, 13-inch, 2020) running macOS 11.3 with FileVault disabled in Target Disk Mode (T2 security settings set with Full Security enabled for Secure Boot and Disallow booting from external media for External Boot) I connected the computer to my MacBook Pro and was prompted for the password to unlock the drive. Thus, enabling FileVault isn't necessary IF you have a Mac with a non-upgradable SSD and you want to prevent data from being taken in the event your computer gets taken.