I think we should all take a step back and look at the facts before jumping to conclusions.
Elliott said that Mercedes is working on an updated sidepod but that it will be an evolution of their concept and not a copy of another team. So, clearly Mercedes do think that the sidepod matters--otherwise they wouldn't bring a significant upgrade to the bodywork--but Mercedes also clearly still have confidence that there is potential in their approach. None of us are qualified to evaluate whether that is true. And people who say Mercedes have lost their step and aren't on the same level as they were when they won 8 championships in a row: how on earth do you think they managed being the third strongest team all last year *despite* having an incredibly dysfunctional car?
Anyone who thought Mercedes would come back from the winter break with a car that could immediately challenge for wins was a little naive. Mercedes have consistently said that they are behind the competition (especially Red Bull) as a result of last year. That's not a controversial statement. They lost a lot of development time last season because they couldn't figure out porpoising and other issues--they obviously have a huge amount to make up if they want to challenge Red Bull. So, anyone who says that the fact they are talking about upgrades to the car in the coming weeks is evidence of them having messed up is a little ridiculous. They were *always* gonna need to bring upgrades to the car to catch up to Red Bull. You can't make up half a second over the winter unless the other team simply doesn't develop.
We simply don't know yet where exactly Mercedes will be next weekend. There are some reasons to think they will be substantially behind Red Bull, but there are other reasons to think they haven't shown their true pace yet. Elliott said they weren't adjusting downforce levels in Bahrain and they didn't run the wing they will have next week. Mercedes was clearly very focused on trying to understand their car and correlating it with what the data they had from last year--they were not trying to optimize the car for next week. So, let's wait and see where they are come qualifying before making conclusions.