Dr Helmut Marko insists Red Bull-Honda "have to be at the front" this weekend in Hungary.
He admits that Mercedes is currently the favourite for the world championship that he had hoped would make Max Verstappen the youngest ever title winner.
"We are not positioned as we had imagined," Marko, who says Mercedes took a big step forward with its engine over the winter, told RTL’s Sportbude program.
"Mercedes is stronger than we expected."
"If we want to keep our chances for the world championship, we have to be at the front this weekend."
Red Bull is tipped to be more competitive on the tight and twisty Hungaroring, but Verstappen says Mercedes will still be "difficult to beat".
"If you are as dominant as Mercedes then you are quick on every circuit," said the Dutchman.