Grand Prix racing from 1934 had been governed solely by a weight limit, and by 1937 the supercharged engines used by Mercedes and Auto Union were producing more than 600 horsepower. The 1938 formula reined in this power escalation by capping supercharged capacity at 3,000 cc, to which Mercedes responded with the W154. The Tripoli Grand Prix in Italian Libya, however, was a non-championship event whose Italian organisers changed the rules specifically after four consecutive dominant victories by German Silver Arrows cars. To give Italian manufacturers Alfa Romeo and Maserati a realistic chance, the Tripoli race was switched to the voiturette formula, favouring the smaller Alfa Romeo 158 and Maserati 4CL.
Mercedes-Benz learned of the rule change in September 1938. Rather than concede the prestigious north African event — which was linked to a state lottery and carried significant prestige — the company committed to building an entirely new car in time for the 7 May 1939 race. The project was completed in approximately eight months.
The W165 was essentially a scaled-down Grand Prix car, applying the same engineering philosophy as the larger W154. Its engine was a 1,493 cc supercharged V8 with a bore and stroke of 64 mm × 58 mm. The compact monoposto followed the aluminium bodywork and Silver Arrows aesthetic of its Grand Prix stablemates. The car was designed with potential future voiturette-formula Grand Prix rules in mind, giving it broader engineering ambitions beyond the single Tripoli race.
The appearance of the W165 at Tripoli shocked the Italian organisers and Italian manufacturers, who had changed the formula precisely to avoid German domination. Two cars were entered for Lang and Caracciola. The pair finished first and second, turning the intended Italian showcase into another demonstration of Mercedes-Benz engineering supremacy. It was the only race the W165 ever contested as a factory entry.
Because of its 1.5-litre supercharged specification, the W165 would technically have been eligible for the post-war Grand Prix formula that ran from 1946 to 1951 — the same formula under which the Alfa Romeo 158, one of its 1939 Tripoli rivals, became the dominant car. Following the war, Caracciola intended to enter a W165 in the 1946 Indianapolis 500, but Swiss customs authorities refused to allow the car to leave Switzerland, ending that attempt.
In 1951, Daimler briefly assigned a budget to build five new W165 cars for Formula 1 racing, but the project was redirected toward a proposed new V12 car designated the W195. That concept was itself cancelled when new Grand Prix regulations for 1954 were finalised, leading instead to the development of the Mercedes-Benz W196.
The W165 stands as one of the most extraordinary one-off efforts in motorsport history. Built in secret over eight months to subvert a rule change designed to prevent German dominance, it succeeded entirely in its mission and was never needed again. Its existence demonstrated the engineering depth and competitive resolve of the pre-war Mercedes-Benz racing programme. Only the two race cars were built, and surviving examples are among the rarest pre-war Grand Prix cars in existence.