The outspoken 1997 world champion was speaking after the Chinese Grand Prix, where Hamilton and Mercedes's quest for a win in 2018 fell flat for a third consecutive race.
"Hamilton is in crisis and is losing points for the championship," Villeneuve told Sky Italia.
"But I think all of Mercedes is in crisis. Now they must bet on [Valtteri] Bottas, who is not a championship driver.
"After the impressive qualifying in Melbourne, Lewis is no longer able to drive the car. It's very troubling.
"We saw last year that when he's in crisis he loses a lot, falls behind in the races and falls asleep, is not aggressive. We'll have to see when and if he wakes up."
The French Canadian also urged Red Bull to promptly re-sign Daniel Ricciardo for 2019.
"Red Bull without Ricciardo would not be a force," he said, "but with Ricciardo it is dangerous.
"He's fighting for the world championship as Ferrari was two years ago, with everything needing to be fine with him and bad for the others."
The championship continues next weekend with the Azerbaijan Grand Prix.