Mercedes boss Toto Wolff admits he was surprised at how Ferrari caught up with his team in Malaysia, and says that his squad must now ramp up development in response to the threat from Maranello.
That could include fast tracking new parts as well as using up power unit tokens sooner rather than later to improve the performance of the next batch of engines.
"We didn't expect it to happen at that pace," he said of Ferrari's improvement. "We were pretty confident in Melbourne, and we're always a little bit sceptical about our own advantage.
"And we always believed that we have to keep sharp and keep developing in order not to be caught out. Within two weeks you're actually caught up by a Ferrari and you lose the race fair and square on track is a bit of a surprise, but equally a bit of a wake-up call, which is good for us.
"If I want to be optimistic I would say that Malaysia was a difficult one last year and the temperatures and were pretty exceptional and we suffered from those temperatures, but then that would be a bit naive.
"I think they've done a great job, they have a good car, good engine and great drivers, and we just have to analyse in the next couple of days what went wrong, where we need to improve, do we need to take some developments forward, put them on the car quicker, what are we doing about engine number two, and assess that properly.
"But definitely we need to increase the pace of our development."
No regrets on strategy
Wolff said he had no regrets about strategy decisions the team took in Malaysia, despite Lewis Hamilton being critical.
"It is always easy to regret and say in hindsight that we could have done this better or that better," Wolff added. "But we are taking these decisions altogether, and we haven't done any strategic mistakes in the last two years that I can recall, and thus is why it doesn't make sense to point the finger to a single event.
"We need to find out why we were struggling on long run pace in these hot conditions. I think that is the main point to look at.
"I guess one of the explanations of the day is the extremely high ambient and tarmac temperatures, and that probably we've gone a bit too aggressive on set-ups.
"That pushed us into a direction of a three stop, which was pretty clear, all the algorithms showed that. And then we were struck in traffic after the pit stops, we damaged the tyres following cars, and here you're not able to catch it up any more."