Pep Guardiola has given Manchester City a reality check by stating they are “teenagers” in the Champions League.

City hold a 3-2 advantage over Schalke before Tuesday night’s last-16 second leg. While they are still favourites to progress, Guardiola pointed to City’s relative inexperience when asked what is required for the club to be considered a true continental heavyweight. This is their eighth season in the Champions League and the sixth time they have qualified for the knockout rounds. The furthest they have got is the semi-finals, losing to Real Madrid 1-0 on aggregate in 2016.

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“Of course we can arrive in the last stages and make another step forward, I cannot deny that,” he said. “But to compare with those [big] teams, one silverware doesn’t change it. We are teenagers in this competition. We want to win it, we push ourselves. The best way is to feel this kind of pressure.”

Guardiola cited last week’s Champions League games when Manchester United overturned a 2-0 deficit to knock out Paris Saint-Germain, and Ajax eliminated Real Madrid, the winners for the past three seasons. “We have to dream and point as high as possible,” he said. “At the same time we have to accept there are other teams thinking the same with a lot of quality and a lot of talent. The English teams right now – United, Tottenham are there – and we cannot deny how strong they are. In 90 or 180 minutes everything can happen and we want to compete against them.

“OK, we are favourites [against Schalke] but in one game anything can happen. United showed incredible character, with 10 players out injured. PSG are 20 points in front in their league, nobody expected it. Ajax went to Madrid [and won 4-1]. Everything is open.”

Schalke have lost all three of their matches since City beat them in the first leg but Guardiola agreed 3-2 may be a dangerous score and pointed to last season’s quarter-final first-leg against Liverpool.

“Last time after Anfield we had to start the second leg 3-0 down. I prefer [to lead by] this score, really. But it’s 90 minutes, we still have a job to do,” he said, then referenced Nicolás Otamendi’s sending-off in Germany. “We played 10 v 11 for 20 minutes and were 2-1 down. We could have been out, we scored and came back. I am sitting here thinking we still have work to do, that’s my feeling.”

Ilkay Gündogan is expected to start because of Fernandinho’s injury but the German midfielder said he may not agree a new contract.

The 28-year-old enters the final year of his deal this summer. The club’s stance is usually not to allow that to happen as a player could leave on a free transfer the following summer. City, though, face a potential transfer ban because of Uefa’s FFP investigation so whether an exception would be made to secure a midfielder they could not otherwise replace for a year is unclear.

Asked why he is still to commit to City again, Gündogan said: “This is something everyone has to decide for themselves. I am 28 years old now so my next contract maybe [will] decide where I will be for the end of my career. Everyone feels different.

“Maybe someone has an inner feeling to go for a new challenge or to change something. If you see on my CV you can read that I am always open-minded for challenges, but it is a personal situation.

“This is something that is not obvious. Everyone has to make his own decision. After the season we are going to sit and we are going to talk again. My main target at the moment is to go for all the competitions and to be successful.”

Gündogan was signed in June 2016 having suffered a serious knee injury and then endured another. Yet he has no concerns about the rigours of the English game. “In modern football, especially if you have ambitions inside yourself, you have to prove that you can play under these demands, these number of games, and how intense the game is,” he said. “In the last couple of years after coming here with a big injury I have proved that I can play for more than two or three years so that shouldn’t be an issue at all.”