I have defined LINUX_VERSION_EXTENSION in my kernel recipe.

I have no CONFIG_LOCALVERSION or CONFIG_LOCALVERSION_AUTO defined in my defconfig

After i run bitbake -c kernel_configme <my kernel recipe> I can see in my .config file:

CONFIG_LOCALVERSION=""
# CONFIG_LOCALVERSION_AUTO is not set

CONFIG_LOCALVERSION="<my extention>"
So far so good.

Then I execute  bitbake -c configure <my kernel recipe>
and the .config file is changed. Now there is:
CONFIG_LOCALVERSION=""
CONFIG_LOCALVERSION_AUTO=y
and there is no trace of CONFIG_LOCALVERSION="<my extention>"

Yocto: dunfell
Kernel 5.4.70