In 1886, the German engineers Gottlieb Daimler and Wilhelm Maybach had built one of the world's first "horseless carriages": literally, their vehicle was a four-wheeled carriage with an engine bolted to it. In 1889, the two men built the world's first four-wheeled automobile powered by a four-stroke engine. They formed Daimler-Motoren-Gesellschaft the next year.
In 1896, Emil Jellinek saw an ad for the D-M-G auto in a German magazine. Jellinek was a rich tobacco trader and banker with a passion for fast (of course, "fast" was a relative term), flashy cars. As the story goes, Jellinek traveled to D-M-G's Cannstatt factory, charged onto the factory floor (wearing a pith helmet, pince-nez, mutton-chop sideburns and a luxurious moustache), and demanded the most spectacular car the company had. The first of his D-M-G cars was sturdy, but it could only go 15 miles per hour—not even close to fast enough for Jellinek.
In 1898, he ordered two more cars, stipulating that they be able to go at least 10 miles per hour faster than the first one could. Daimler complied; the result was the eight-horsepower Phoenix. Jellinek was impressed enough with his new cars that he began to sell them to his friends: 10 in 1899, 29 in 1900. At the same time, he needed a racing car that could go even faster than the Phoenix. Jellinek went back to D-M-G with a business proposition: if it would build him the world's best speedster (and name it the Mercedes), he would buy 36 of them.
The new Mercedes car introduced the aluminum crankcase, magnalium bearings and the pressed-steel frame, a new kind of coil-spring clutch and the honeycomb radiator (essentially the same one that today's Mercedes use). It was longer, wider, and lower than the Phoenix and had better brakes. Also, a mechanic could convert the new Mercedes from a two-seat racer to a four-seat family car in just a few minutes.
The new car was a hit. In 1902, the company legally registered the Mercedes brand mane, and in 1903, Emil Jellinek legally changed his own name to Jellinek-Mercedes.