Why was the Regalia Type-D reverted in chapter 7?
The later half of the story is significantly more railroaded (both literally and figuratively) than the first, which is basically a true open-world game. After you embark on the boat, the Regalia can't even be used again (only returns in a single driving scene / minigame, if I remember correctly) until you get to the post-game content, where the modification becomes available again.