The BVB general manager feels the first-half performance in the defeat to Schalke was unacceptable, though the club's win against Shakhtar Donetsk gives it something to hang on to.
Jurgen Klopp's side was disappointing in its 2-1 Ruhr derby defeat to Schalke, with its first-half display being especially poor, and Watzke feels a repeat performance in Europe would see the club eliminated.
"If we play the way we did in Gelsenkirchen in the first half, there is no way we will go further in the Champions League," he told Bild.
The 53-year-old was not totally negative though, and feels if the team can find the performance levels from the 3-0 win over Shakhtar Donetsk, then it will find success.
"If we play like we did against Donetsk, we will win more league matches and find our form again," he said.
BVB reached the quarterfinals of Europe's premier club competition by seeing off Shakhtar in the last 16, though it is very unlikely the team will catch Bayern Munich at the top of Bundesliga where the gap is 20 points.