Tyres are the only and BIG factor in all this. If the tyres don't come alive, the car is naturally going to struggle for grip. The test in Barcelona was all done in way less than ambient temperatures and they massively struggled with cold graining. Given the fact that, their car was barely 2 to 2 and half days old (Spec 2), it is not entirely surprising that the tyres are not in ideal window. We will see when the car hits a track with more ambient temperatures and with more time for Mercedes to go back to the factory and analyze the data.
Despite those limiting factors, their race sim looked close to Ferrari, which should be encouraging. When they get better understanding of the setup, specifically as they kept experimenting with different types of front suspensions, they should be in better position to compete.
Many people are trying to play down that S3 performance and that surely is one thing to watch for! If anyone had read a report motorsport italia, which I had posted after the conclusion of first test and later heard the comments from Toto and Bottas about the performance of Spec 2 on slow corners, then that is really something that need to watched for!