While Daimler had managed to improve production,…

While Daimler had managed to improve production, the weakness in the Otto's vertical piston design, coupled to Daimler's stubborn insistence on atmospheric engines, had led the company to an impasse.

Neither Otto nor Daimler would give way, and when Daimler was offered the choice of founding a Deutz branch in St. Petersburg or resigning, he resigned to set up shop in Canstatt (financed by savings and shares in Deutz), where he was shortly joined by Maybach.

At Canstatt, Daimler and the creative Maybach devised their engine.

At Daimler's insistence, it eliminated "the clumsy, complicated slide-valve ignition", in favor of a hot tube system invented by Leo Funk, since Daimler also distrusted electricity.

It took considerable effort an experimentation, but eventually, the duo perfected a .5 hp (0.37 kW; 0.51 PS) vertical single, which was fitted in a boneshaker chassis equipped with outriggers.

When this proved the engine capable of driving a vehicle, Daimler devised a 1.1 hp (0.82 kW; 1.1 PS) single and ordered a Wimpff und So four-seater phaeton to house it.

Daimler's engine was installed by Esslingen Engineering Werke and drove the rear wheels through a dual-ratio belt drive.