1932 hardly provided a favourable backdrop for motor sport in Germany, with unemployment, the economic depression and the closure of the Mercedes-Benz works racing department. There were good prospects for the future, however, for in autumn the AIACR (Association Internationale des Automobile Clubs Reconnus) in Paris announced a new formula for Grand Prix racing that was to come into force in 1934. The new rules stipulated a maximum weight of 750 kilograms without fuel, oil, coolant and tyres, but otherwise no restrictions for constructors. This was an ideal opportunity for Mercedes-Benz to compete with a new car. The SSKL was now a representative of a bygone age. Its weight alone was enough to bar any possibility of adaptation for the new rules, at almost double the new maximum figure.
Mercedes-Benz made the decision to develop a new racing car in 1933, following sustained pressure for a return to the race track from racing manager Alfred Neubauer. Furthermore, the whole motor sport context in Germany had now changed with the seizure of power by the National Socialists: the new government's commitment to the rapid development of the automotive industry led it to continue existing autobahn construction projects, lower the tax on new cars, and encourage leading automakers to get involved in motor sport. These policies also gave rise to a new competitor for Mercedes-Benz: the Chemnitz-based Auto Union, created in August 1932 as a result of the merger between four Saxony-based motor vehicle manufacturers: Audi, DKW, Horch and Wanderer. The rivalry between the racing cars with the three-pointed star and those with the four rings was to shape European racing history in the years up to 1939.
One of the first drivers contacted by Neubauer was Rudolf Caracciola - in spite of the months he had spent in hospital with serious leg injuries following an accident in Monaco in April 1933, and doubts that he would be fully fit to race again. The other team members were Manfred von Brauchitsch, Luigi Fagioli, Hanns Geier and Ernst Henne. By the winter of 1933, Neubauer was enthusing about an elegant monoposto designed to carry its team once more to victory.
A team of engineers led by the head of the principal design office, Hans Nibel, were working under intense time pressure on the development of the new car. The front engine design may have been rather conservative in comparison with Auto Union's mid-engine car and the company's own earlier designs such as the Benz 'Teardrop car', but the combination of a slim body, mechanically supercharged 3.4-litre in-line eight-cylinder engine, individual wheel suspension and direct rear axle transmission was a recipe that would carry all before it on the race track. The chassis was the responsibility of Max Wagner, while the engine was the domain of Albert Heess and Otto Schilling. Meanwhile, in the research and development department under Fritz Nallinger, Georg Scheerer, who had also assisted at the birth of DMG's supercharged car, was running exhaustive tests on the engine. Otto Weber assembled the engine and Jakob Kraus fitted the chassis, both having been part of the DMG sortie to Indianapolis in 1923.
Test drives of the new Mercedes-Benz monoposto started in February 1934 in Monza and on the motorway between Milan and Varese. The 235 kW car (later boosted to 260 kW with a new Esso fuel mixture) recorded maximum speeds of over 250 km/h.
Mercedes-Benz also decided on a new chassis colour for the W 25: silver. The debut of the new car had been planned for the Avus race in Berlin in May 1934, but the team withdrew at the last minute on account of technical problems. Accordingly, the new car made its first appearance one week later, at the International Eifel race at the Nürburgring on 3 June. The W 25 lined up at the start in silver - supposedly, as legend has it, after the cars on the Nürburgring had been stripped of their white paint for weight reasons. Even though this race was not run in accordance with the 750-kg formula, apparently the team was determined to present a car that met the new regulations. The name 'Silver Arrow' was coined some time later and gradually caught on over the years.
So the Eifel race in 1934 was the first start for the new Mercedes-Benz formula racing car - and also its first victory. Manfred von Brauchitsch finished first in his W 25 at an average speed of 122.5 km/h, setting a new track record in the process.
Further victories in the W 25's first year included Caracciola winning the Klausen race, Luigi Fagioli's triumph at the Coppa Acerbo around Pescara and a Mercedes-Benz victory in the Italian Grand Prix at Monza. A total of some 1300 corners and chicanes made Monza the most demanding event on the 1934 racing calendar. As a result of his accident, Rudolf Caracciola was still in severe pain and not fit enough to make it through the entire race. So halfway through the race Luigi Fagioli took over at the steering wheel of the car starting under the number 2. Technical problems with his own car had forced Fagioli out at an early stage of the race, but he successfully defended the lead Caracciola had built up over the field by that stage and was first across the finish. Fagioli also won the Spanish Grand Prix ahead of Caracciola and finished second in the Masaryk Grand Prix in Brno.
The results from the 1934 season clearly put Mercedes-Benz back at the top of the international motor sport ratings. Caracciola further underscored the performance of the new Grand Prix racer with a raft of records in the winter of 1934. In Gyön, near Budapest, he drove the Mercedes-Benz W 25 with fully enclosed cockpit - and therefore termed a 'racing saloon' - on a concrete track. He set an international speed record for Class C (displacement of 3 to 5 litres) for the flying kilometre and flying mile, with speeds of 317.5 km/h and 316.6 km/h respectively. He also set a new world record for the standing start one mile, at 188.6 km/h. In December, Caracciola then set an international Class C record of 311.9 km/h over 5 kilometres on the Avus track.