In 1882 Daimler had purchased a villa in Taubenheimstraße, Cannstatt for 75,000 Goldmarks. The large garden of this villa contained a greenhouse which he immediately converted into a workshop with a brick extension. The basic approach of Gottlieb Daimler was to use gasoline as the fuel for his engines, and to install these in every conceivable type of vehicle – on land, on water and in the air. Naturally he turned to Otto’s four-stroke process as the operating principle for these engines, however this did not allow high revolving speeds owing to its complicated ignition mechanism. After intensive experimentation, Daimler filed a patent for an uncooled, heat-insulated engine with an unregulated hot-tube ignition system. This patent with the number DRP 28022 was extremely cleverly worded, as it was strictly speaking hardly different from the four-stroke principle invented by Otto. Accordingly it gave rise to a number of bitter legal disputes in which the company in Deutz involved itself, as Daimler had refused to grant the company free user rights to the unregulated hot-tube ignition system. Thanks to a personal appearance by Daimler, the court was persuaded to agree with his arguments and support his claim. The first experimental engine eventually ran towards the end of 1883; it was cast by the Kurz bell-foundry and is shown in their books as the 'small model engine'. Thanks to the hot-tube ignition system and curved groove exhaust valve control, this engine achieved 600 rpm and easily bettered existing engines which could only manage a maximum speed of 120-180 rpm.

The next experimental engine was known as the Grandfather Clock by virtue of its appearance. The output of the first version built in 1884 was around one horsepower at 600 rpm. With this unit, which was designed for low weight and compact dimensions, Daimler and Maybach created the basis for installation in a vehicle. The first experimental vehicle was a motorcycle with a wooden frame subsequently known as the Riding Cycle or Riding Car. An even more compact version of the single-cylinder Grandfather Clock was installed vertically beneath the seat. For this 'Vehicle with a gas or petroleum engine', as the patent application read, Daimler was granted patent no. DRP 36423 on August 28, 1885. By the spring of 1886 Daimler had ordered an 'American' coach from coachbuilder W. Wimpff & Sohn. Manufactured in Hamburg and assembled in Stuttgart, the coach was delivered on August 28 and secretly brought to Daimler’s home during the night, ostensibly as a birthday present for Emma Daimler. The engine, which was installed under the supervision of Maybach at Maschinenfabrik Esslingen together with the drawbar steering, developed 1 ½ hp and was built along the lines of the Grandfather Clock. Power was transferred by means of belts. Daimler’s Motorized Coach was the world’s first four-wheeled automobile.

The next experimental vehicle was a boat. Patent no. DRP 39367 was granted for 'A system for the operation of the screw shaft of a ship by means of a gas or petroleum engine'. In June 1887 production was moved to new workshops on the Seelberg in Cannstatt. Gottlieb Daimler recruited 23 hand-picked employees. This number of workers was far too high for a purely experimental operation, and the resulting costs absorbed the greater part of Daimler’s private resources – even though fairly buoyant sales of boat engines were generating good profits. Eventually the lack of liquidity led Daimler to look for partners, and he found them in Max Duttenhofer, the Managing Director of the Cologne-Rottweil powder works, and his friend Wilhelm Lorenz. On November 28, 1890 they formed a joint-stock company named 'Daimler-Motoren-Gesellschaft' with the aim of continuing the activities at Seelberg. Though the shareholder’s agreement envisaged Maybach as the Chief Engineer of Daimler-Motoren-Gesellschaft, the terms of employment were unacceptable to a specialist of Maybach’s stature and he left the company on February 11, 1891. Subsequent disagreements between Duttenhofer and Daimler mainly concerned the products. When it appeared that no agreement could be reached on the matter, Daimler finessed the situation. Development was to be continued independently of Daimler-Motoren-Gesellschaft, with the involvement of Maybach. This enabled Daimler to kill two birds with one stone, for he would have been obliged to pay Maybach a substantial sum on termination of their contract. Secondly, Maybach’s private home was now pressed into service as a design office.

In the fall of 1892 Maybach rented the garden room of the former Hermann Hotel on behalf of Daimler. For reasons of secrecy, the patents for the designs produced here were registered in the name of Maybach. Daimler merely provided the financial resources, leaving Maybach a completely free hand as a designer. One of Maybach’s most important inventions during this time was the spray-nozzle carburetor. DMG was not destined for commercial success after Maybach’s departure. It is indicative that the inventions of Daimler and Maybach were first put to commercial use abroad, above all in France. In 1889 the two automotive pioneers Panhard and Levassor had obtained licensing rights from Daimler, and from 1890 they only installed the V2 engines developed by Maybach in their vehicles.

Gottlieb Daimler had suffered from heart problems for some time. In the winter of 1892/93 he fell ill once again, and was sent to Florence to recuperate in the spring. It was there that Daimler met Lina Hartmann née Schwend, whose acquaintance he had once made when visiting friends in Cannstatt. His first wife Emma had died on July 28, 1889, and he was very struck with the worldly, 22 years younger Lina Hartmann. Daimler decided to marry again, and his wedding to Lina Hartmann took place in Schwäbisch Hall on July 8, 1893. Suffering from the effects of his heart complaint, Daimler made a number of mistakes where Daimler-Motoren-Gesellschaft was concerned. For example he declined to acquire a further 102 shares which would have ensured a majority holding, possibly because he may have doubted whether the situation of DMG would improve in the future. The increasingly difficult relationship between Daimler and Lorenz/ Duttenhofer eventually led to them excluding him as a shareholder by insisting on repayment of the 400,000 Marks which Daimler-Motoren-Gesellschaft owed to the bank. Otherwise they threatened to declare the company insolvent, but gave Daimler the option of purchasing his shareholding and the rights to his inventions from him for the sum of 66,666 Marks. To avoid bankruptcy, Daimler agreed. They were rid of him, but this did nothing to improve the company’s fortunes. There was no further technical progress, and the financial situation steadily worsened.

In 1895 Maybach refused an offer of employment from Daimler-Motoren-Gesellschaft, stating that he would not return without Daimler. Duttenhofer would probably never have agreed to this, however something else occurred which brought about a change of mind. By virtue of the Phoenix engine designed by Maybach, Daimler engines became a major talking point abroad. A group of English industrialists, whose spokesman was Frederick R. Simms, wished to purchase the rights to this engine for England – at a price of 350,000 Marks. A condition was attached to this offer, however: Daimler must be allowed to rejoin the company. The return of Daimler and Maybach enormously improved the fortunes of DMG. Daimler received his shareholding of 200,000 Marks back, plus bonus shares to the value of 100,000 Marks. He was appointed to the Supervisory Board as an expert adviser and general inspector. On November 8, 1895 Maybach was appointed Chief Engineer of Daimler-Motoren-Gesellschaft, and was also granted shares to the value of 30,000 Marks. The foremost concern for Maybach was now to restore the competitiveness of DMG with technically advanced and reliable products. The designs developed at the Hermann Hotel provided an important basis for this. Gottlieb Daimler died five years later, on March 6, 1900.