I think Luiz's motivation suffered a huge blow after he realized that despite his great performance last season, Tite wasn't going to call him for this year's World Cup, so his dream of redeeming himself at International level was dead in the water. Its worth noting that Tite announce his last Brazilian squad in October 20. 11 days later Luiz came up with a shocking performance and the team was smashed by Roma. That was Luiz last game as a starting XI.
Luiz problem used to be that he always wanted to give more than he could. He used to be WAY too proactive for a CB. But this season its different, it seems he just doesn't care. He became WAY too passive. His performance against Watford was the typical performance coming from a player that does not give a fuck at all. Even his body language is different. Conte was a fan of Luiz, and out of nowhere he became the 5th CB in the picking order. I don't think Conte would drop Luiz just because of some discussion about his methods, but lack of commitment is a good reason to drop a player.