By 1882, both Daimler and Maybach had left Nikolaus Otto's Deutz AG Gasmotorenfabrik. They founded DMG in 1890 with the purpose of constructing small, high-speed engines based on stationary engine technology they had developed. On 5 July 1887 Daimler had already purchased a property in Seelberg Hill in Cannstatt, previously a precious metal foundry, from which they produced engines for the Neckar motorboat — one of the earliest motorboats in the world.
To convert the private business to a public corporation in 1890, Daimler reached an agreement with industrialists Max von Duttenhofer and Wilhelm Lorenz, both munitions manufacturers, and banker Kilian von Steiner. The new financiers prioritised stationary engine production over automobiles. This led to friction with Daimler and Maybach, who eventually left DMG temporarily. Daimler's friend Frederick Simms persuaded the financiers to bring both men back in early 1896, with Daimler appointed General Inspector, Maybach as chief Technical Director, and Simms as a director.
The first DMG automobile was sold in August 1892 to the Sultan of Morocco; that registration still survives. The first series production model appeared in 1892, followed by a two-cylinder vis-a-vis in 1895 and a front-engined four-seat tourer in 1897. DMG sold automobile engine licences across the world, including to companies in France, Austria, the United Kingdom, and the United States through an arrangement with the piano manufacturer Steinway in New York.
The breakthrough came from Emil Jellinek, an influential customer who ordered a small number of race cars to his own specifications, built by Wilhelm Maybach. Jellinek stipulated the engine be named Daimler-Mercedes — after his daughter Mercedes Jellinek — and promoted the new car through motor racing. The resulting race car became known as the Mercedes 35 hp and was built in 1900. Jellinek joined DMG's board of directors in 1900 and left in 1909. The car's success redirected the board's interest decisively toward automobile production. In 1902 DMG officially adopted Mercedes as its automobile trademark and produced the first Mercedes production models, led by the Mercedes 60 — capable of 120 km/h and the top-status car of its era, subsequently copied by manufacturers including Berliet, Rochet-Schneider, Martini, Ariel, Star, and FIAT.
The success of the Mercedes 60 drove rapid growth. DMG's workforce expanded from 821 employees in 1903 to 2,200 in 1904. Between 1906 and 1913, the company expanded production capacity substantially, reducing reliance on external suppliers. Annual productivity grew from 0.7 cars per worker to 10. DMG's shares were listed on the Stuttgart stock exchange in 1911.
In October 1902 DMG opened its Berlin-Marienfelde factory, initially for motorboat and marine engines, later expanding into trucks (1905) and fire trucks (1907).
At Untertürkheim, an ideal site close to the Neckar river and the Stuttgart-Ulm railway, DMG built its main production facility. The local mayor sold 185,000 square metres of land at a reduced price and arranged for a railway extension and hydroelectric power. The 1903 fire at the Cannstatt factory — which destroyed all machinery, 93 finished Mercedes cars, and a small museum including Daimler and Maybach's first motorcycle, the Reitwagen — accelerated the move to Untertürkheim, with production beginning in December 1903. Untertürkheim became DMG headquarters on 17 May 1904, and by the 1920s housed virtually all production processes from foundries to final assembly.
During the First World War, a factory at Sindelfingen opened in autumn 1915 to manufacture military vehicles, aircraft engines, and complete aircraft. Post-war, constrained by the Versailles Treaty, Sindelfingen produced only automobile bodies.
Motor racing was central to DMG's commercial strategy from its earliest years. The Mercedes 35 hp of 1900 established the brand's racing credentials, and the subsequent Mercedes 60 of 1902 dominated competition. DMG won the 1908 French Grand Prix with its 140 hp model. The pre-war Mercedes racing cars set standards for chassis design, engine output, and driving technique that influenced the entire industry.
DMG's motorboat production began in 1886 with the Neckar, a 4.5-metre vessel capable of 11 km/h, tested on the local Neckar river and recognised as the world's first motorboat. The Berlin-Marienfelde factory was built specifically to expand motorboat and marine engine production after the public corporation was formed.
The post-World War I German economic crisis created severe pressure on German industry. In 1924, DMG and Benz & Cie. signed an Agreement of Mutual Interest; both companies continued producing separately until 28 June 1926, when they formally merged to form Daimler-Benz AG. The new company adopted Mercedes-Benz as its automobile trademark. DMG's engineering traditions — the petrol engine, the carburetor, the high-speed engine concept — underpinned everything Daimler-Benz subsequently produced, including the Silver Arrows that dominated Grand Prix racing in the 1930s and the W196 that won the 1954 and 1955 Formula One World Championships.
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