Ross Brawn has revealed that Mercedes' 2011 car is "about a second" off the pace.
There had been concerns about the W02's performance following the initial winter tests, but team figures insist a major upgrade package is scheduled for the start of the season.
"We're about a second off where we want to be, which is at the front, so we've got to find a second in the upgrade which we think we can do," team boss Brawn told BBC radio on Thursday.
"But you never know what others will do -- we've set out our plan and we'll know in Melbourne if it's right," he added.
However, rumours are circulating that the Melbourne upgrade - featuring a new exhaust layout - has failed the FIA crash tests.
"Performance, obviously from what we've seen on the track, at the moment is not as good as we would like," team chief executive Nick Fry told Reuters.