I don't' think Pep is to be blamed here...
What any City player has to have, especially front 6 player - is being solid and stable with the ball.
Yes, he can be lethal in the final third, but he is not striker or false9 or winger, he is midfielder and midfielder shouldn't be easily loosing the ball.
First thing what he lacked last season, was that any time there was like physical duel or tackle or something like that, I had a feeling that he would loose 10 out of 10 times. Also, he was slipping a lot on the pitch.
So if we combine these two issues, it means that we are vulnerable whenever this guy plays, because he lacks ability to cope with the "first action" or needs more time or space than City has luxury to give to a midfield player.
Same problem we had with Kalvin, that's why Pep mentioned this summer that Kalvin likes to have space and time, but who doesn't ? :D
But I still think that Matheus has a future here, because he wasn't and isn't "Kalvin Phillips bad". But he has to improve in terms of physical strength to avoid those slippery on the pitch and endure physical duels as well.
Otherwise - his first touch, dribbling, shooting and other skills are extraordinary.