The Gunners suffered a shock 2-1 defeat to Watford on Tuesday, which leaves them nine points behind the Premier League leaders ahead of their meeting later today (12:30pm).
It was Mustafi's first loss in an Arsenal shirt since his arrival in the summer.
Chelsea v Arsenal combined XI: Which stars make the cut in our team?
Fri, February 3, 2017
Express Sport compiles a star-studded XI of players from Arsenal and Chelsea ahead of their Premier League clash on Saturday (12.30pm)
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Which Arsenal and Chelsea stars make it into our combined XI?
And the German knows they must fix their issues to avoid another poor performance against their west London rivals.
He told Sky Sports: "It can only be mental. We know we can play better and we were sloppy at the start.
Arsenal's Shkodran Mustafi vies for the ball against Watford's Troy Deeney
"It's all about mentality, being there from the first minute and knowing the Premier League is a difficult competition and teams are going to go for the opportunity they have, which Watford did.
"They ran at us and defended well. We were not clever or concentrated enough to stop them.
"We were not there, they ran all over us, and we cannot be happy with that at home. We have to bounce back, it's a big game against Chelsea, we will try to be there from the first minute to the last second."