Lil Nas X and MSCHF appear to have purchased a bunch of Nikes and modified them by changing the color, embroidering them with writing, and adding drops of human blood to the soles. When they marketed them as "Satan Shoes," Nike sued MSCHF for trademark infringement, false designation of origin, and trademark dilution.
I'm sure Nike has spectacular lawyers, so I assume its claims are much stronger than I would have otherwise assumed. While I understand their reluctance to be associated with Satanism or bloody sneakers, I'm having trouble understanding why the buyer of a trademarked product would be unable to modify and resell it.
I assume that if I bought a Ford Mustang and dropped a Toyota Yaris engine into it, it takes away from the central attraction of a Mustang, but does that mean I can no longer sell it? What if I just paint it a shade of red other than what Ford uses? What if I add a pentagram window sticker?
To what extent does the trademark holder have the right to control how buyers modify and sell its products? How do those rights apply to the Satan Shoes case?
EDIT: I'm looking for answers that include citations to relevant case law.