Toto Wolff conceded Mercedes must change their car design in order to return to the top of Formula One.
Mercedes endured a dismal 2022 season, with Lewis Hamilton suffering the first winless campaign of his F1 career.
Much of their struggles were put down to issues with the car, but Mercedes stuck with their unique "zero pod" design for the 2023 season, despite the success of Red Bull's "side pod" model.
Yet after a disappointing qualification session that saw George Russell place in sixth and Hamilton in seventh for Sunday's season-opening Bahrain Grand Prix, Wolff confirmed changes will have to be made.
He said: "I don't think this package is going to be competitive, eventually.
"We gave it our best go also over the [off-season] and now we just need to all regroup, sit down with the engineers who are totally not dogmatic about anything and decide what is the development direction we want to pursue in order to be competitive to win races.
"It's not only like last year that you're scoring podiums and eventually you get there.
"I'm sure we can win races this season but it's really the mid-and long-term that we need to look at which decisions you need to take."
Good night, Team. Better tomorrow. pic.twitter.com/o8DfpbooLT— Mercedes-AMG PETRONAS F1 Team (@MercedesAMGF1) March 4, 2023
Wolff believes Mercedes "gave it our best shot" but ultimately the team must accept their model has not worked.
"We hit our targets. That's why we gave it our best shot," he continued. "The moment comes and the stopwatch comes out and that showed us that it's simply not good enough.
"We haven't got enough downforce and we need to find solutions to fix that."
Two-time reigning world champion Max Verstappen claimed pole position in Saturday's qualification, with team-mate Sergio Perez completing a front-row lockout for Red Bull.
Ferrari duo Charles Leclerc and Carlos Sainz will start in third and fourth respectively, while Aston Martin's Fernando Alonso occupies fifth on the grid ahead of Russell and Hamilton.