I really don't think it is entirely Jose losing the plot. Even when he "lost it" at Madrid, they kept on winning games because their squad was good. Chelsea's problems have more to do with the downright poor quality of the players they have. Even when they were winning last season, it was usually by fine margins - they never blew teams away. Their team is one that looks decent on paper but when you look at each player individually you realize they are pretty mediocre. The defense has no composure, they don't know how to play out of the back, so they don't get too many opportunities to counter attack, the midfield and attacking midfield lack creativity and technical ability, and Costa is out of form probably because he is overweight. He is visibly slower this year. But you definitely can't be a good footballing team when your 6 defensive players are all donkeys on the ball, and then don't have too much creativity or technical ability in the attacking players.
Most annoyingly people laud Willian but what does he do? He's not a very creative player like Silva or Ozil, he doesn't beat players like Hazard does, never assists, and only scores goals from free kicks. So his only attribute is defensive ability.