Unit testing classes that instantiate other classes

I'm trying to write unit tests for a class that instantiates other classes within it, but am struggling with how to instantiate those classes in a testable way. I'm aware of dependency injection, but this is somewhat different as the instantiation doesn't happen in the constructor.

This question really isn't specific to MVVM and C#, but that's what my example will use. Note that I've simplified this and it will not compile as-is - the goal is to show a pattern.

class ItemListViewModel
{
  ItemListViewModel(IService service)
  {
    this.service.ItemAdded += this.OnItemAdded;
  }

  List<IItemViewModel> Items { get; }

  OnItemAdded(IItemModel addedItem)
  {
    var viewModel = new ItemViewModel(addedItem);
    this.Items.Add(viewModel);
  }
}

class ItemViewModel : IItemViewModel
{
  ItemViewModel(IItem) {}
}

As can be seen above, there is an event from the model layer. The ViewModel listens to that event and, in response, adds a new child ViewModel. This fits with standard Object Oriented programming practices that I'm aware of, as well as the MVVM pattern, and feels like quite a clean implementation to me.

The problem comes when I want to unit test this ViewModel. While I can easily mock out the service using dependency injection, I'm unable to mock out items added through the event. This leads to my primary question: is it OK to write my unit tests depending on the real version of ItemViewModel, rather than a mock?

My gut feel: that isn't OK because I'm now inherently testing more than ItemListViewModel, particularly if ItemListViewModel calls any methods on any of the items internally. I should have ItemListViewModel depend on mock IItemViewModels during testing.

There's a few tactics I've considered for how to do this:

1. Have ItemListViewModel's owning class listen to the event and add mocked out items. This just moves the problem around, though, as now the owning class can't be fully mocked out.
2. Pass an ItemViewModel factory into ItemListViewModel and use that instead of new. This would definitely work for mocking as it moves things to be based on dependency injection...but does that mean I need a factory for every class I ever want to mock in my app? This feels wrong, and would be a pain to maintain.
3. Refactor my model and how it communicates with the ViewModel. Perhaps the eventing pattern I'm using isn't good for testing; though I don't see how I would get around needing to ultimately construct an ItemViewModel somewhere in code that needs to be tested.

Additionally, I've searched online and looked through the book Clean Code, but this really hasn't been covered. Everything talks about dependency injection, which doesn't clearly solve this.