Volkswagen’s chief executive, Herbert Diess, has admitted the pace of Tesla’s expansion took him by surprise, and the German carmaker may struggle to overtake its upstart US rival.

Diess is leading the world’s second-largest carmaker on a rapid increase in electric vehicle sales, but he acknowledged VW may be unable to catch up with Tesla and that it would be a “tight race”.

“We didn’t expect our main US competitor to be so fast,” he said, speaking via video link from Germany at a Financial Times car conference on Monday. “It will be tight but we won’t give up on it. I would still see a chance that by 2025 we are first. At least second.”

Under Elon Musk, Tesla has become by far the world’s largest carmaker by stock market value at nearly $900bn (£729bn), compared with VW’s €89bn and delivered 936,000 cars in 2021. Of the 8.9m vehicles VW sold last year, 452,900 were pure electric. Toyota has been the world’s largest carmaker in sales terms for the last two years, but has decided to opt for a slower transition away from fossil fuels.

The chief executives of Volkswagen and Tesla appear to share an unusually warm personal relationship, with Musk in 2020 test-driving one of VW’s ID.3 electric cars with Diess in Germany. In October, Musk joined a conference call of VW executives at the invitation of Diess to talk about how to speed up the transition to electric technology.

Tesla is rapidly ramping up production, with new factories in Texas and Berlin adding to existing facilities in California and Shanghai. How Musk manages that increase will be a key question for Tesla, said Diess, amid global supply chain issues, shortages of computer chips and disruption from the war in Ukraine.

He said the first quarter of 2022 was “for sure dominated” by the shortage of semiconductors but added that there were signs of improving conditions in an issue that has dogged the industry’s recovery from the pandemic.

“Even under these really difficult circumstances […] 22 could still be a good year for us and for the car industry,” he said.

Despite aiming to be the world’s largest electric car manufacturer, Volkswagen is only aiming for 50% to 60% of its sales being fully electric vehicles by 2030. In comparison, traditional manufacturing rivals such as Volvo and General Motors are planning to only sell zero-emissions vehicles by 2030 and 2035 respectively.

Diess said demand for electric cars was rising more quickly than anticipated across the world. In China, the company could have quadrupled sales in the first quarter had it been able to manufacturer vehicles quickly enough, he said.

“We are sold out of electric cars because the demand is higher than we expected initially,” Diess said.