How close was Germany to winning the naval arms race before WW1?

The Germans had more or less lost it by the Summer of 1914. Not only had the Royal Navy out built the Kriegsmarine, the British had introduced a number of technical innovations that the Germans found difficult to match. British naval construction was not only producing the first generation of super-dreadnoughts like the Queen Elizabeth Class, but were also expanding naval armaments across the board. Some of these experimental vessels were novel white elephants like the K-class submarines, but they collectively signaled that Britain was investing far more into newer naval technology than Germany. Perhaps most distressing for German naval planners was the increasing use of oil-fired boilers by the British. This was a brave decision since Britain had no real source of oil, but British maritime trade guaranteed it access. Germany had no secure source of oil to match British sources and its fleet never made a full transition over to oil over coal. This imparted to the British tactical and operational advantages over the Kriegsmarine since not only were oil-powered ships faster, but their relative lack of smoke compared to coal-powered ships reduced their visibility.

Sources

Brown, D. K. The Grand Fleet: Warship Design and Development, 1906-1922. Annapolis, Md: Naval Institute Press, 1999.

Herwig, Holger H. "Luxury Fleet": The Imperial German Navy, 1888-1918. London: Allen & Unwin, 1980.

Lambert, Nicholas A. Sir John Fisher's Naval Revolution. Columbia, S.C.: University of South Carolina Press, 1999.

Weir, Gary E. Building the Kaiser's Navy: The Imperial Naval Office and German Industry in the Von Tirpitz Era, 1890-1919. Annapolis, Md: Naval Institute Press, 1992.