Toto Wolff says Mercedes must immediately decide whether to stick with its car's current concept or embark on a completely different development path.
Mercedes was hoping that its 2023 W14 – a cleaned up and evolved version of its troubled W13 silver arrow – would hit the ground running in Bahrain.
But while Mercedes' engineers have successfully removed from their new design the porpoising and bouncing bronco characteristics of its predecessor, other weaknesses have crept in.
In Bahrain, the W14 suffered from a strange loss of downforce on the front axle that significantly impacted the car's overall performance and the degradation of its tyres,
Lewis Hamilton and George Russel finished a distant fifth and seventh in last weekend's race behind Red Bull's dominant duo comprised of Max Verstappen and Sergio Perez, but the pair were also outpaced by Fernando Alonso's Aston martin and Ferrari's Carlos Sainz.
On Saturday, after qualifying, Wolff admitted, much to the media's astonishment, that the concept pursued by Mercedes last year and extended into this year was fundamentally flawed.
The Brackley squad is scheduled to introduce revised side-pods on its W14 at Imola in May, but a more drastic revamp could be in the works.
However, with F1 teams now operating under a mandatory strict budget cap, Mercedes cannot throw good dollars after bad or spend its way out of its plight.
"It is extremely difficult to catch up such an advantage, but it is what we have to do. We have no choice," said Wolff.
"I am not sure the budget cap gives you constraints in the position where we are, but we do need to decide which direction we are going in and put all the resources behind it.
"We are still developing one car. The question is just which car."
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Now in crisis mode, Mercedes needs to make a call on its next steps in terms of the direction of its development programme;
"We will tackle it straight away because, when you look at where we were at the end of the season, where it seemed like we caught up a lot and it was just a matter of which circuits suited us and which not, it seems like we almost doubled if not tripled the gap to Red Bull," he added.
"This is what we need to look at. Everything in between - the Ferrari, the Aston - that’s just a sideshow.
"Having said that, what Aston Martin was able to achieve is a good inspiration because they came back from two seconds off the pace to being second-quickest team. And with us everything is bad.
"The single-lap pace is still good but in the race we saw the consequences. To put it bluntly, we are lacking downforce, sliding the tyres and going backwards."
Wolff said the magnitude of the response that will be required to tackle Mercedes' predicament had been made clear to the whole team, and especially to its drivers.
"The drivers are fully aware," said the Austrian. "We are speaking about it openly in the whole team. Everyone is aware, this is not a matter of finding 0.3 seconds and polishing the car up.
"This is a matter of serious performance we need to find to put us back in a position to fight for race wins and championships."
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