We Study Billionaires - The Investor’s Podcast Network - TIP827: Auto1 Stock (AG1): Is This the Amazon for Cars? w/ Daniel Mahncke & Shawn O’Malley

Episode Date: July 2, 2026

Daniel Mahncke and Shawn O'Malley take a deep dive into Auto1 Group (ETR: AG1), the Berlin-based used-car platform. They examine whether Auto1's instant-guaranteed-pricing model is a genuine consumer moat or a balance-sheet liability in disguise, what the economics actually look like in 2026 once you separate the merchant flywheel from the retail build-out, and the more uncomfortable side of the bull case. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:03:23) Why the traditional used-car market doesn’t work well (00:10:24) About the size of the used-car market (00:13:11) How Auto1’s business model works (00:16:38) Who Auto1’s founders are (00:26:15) How Auto1 buys and sells cars (00:37:27) How the unit economics work (01:03:12) Valuation discussion of AG1 (01:06:58) Whether Auto1 is valued attractively (01:08:58) Whether Shawn and Daniel add AG1 to the Intrinsic Value Portfolio Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Track ⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Portfolio⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about how to join us in NYC for our ⁠Intrinsic Value Conference⁠. Portfolio Review Submit Tool. Value Investors Club Pitch on Auto1. Business Breakdowns Episode on Auto1. Auto1 Investor Relations. Check out our previous Intrinsic Value breakdowns: Copart, Ferrari, ⁠Uber⁠, ⁠Grab, Lyft, Exor NV, Mercedes-Benz. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠sponsors⁠: ⁠Plus500⁠ ⁠Netsuite⁠ ⁠Shopify⁠ ⁠Vanta⁠ References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Today, you will get your cold open, Sean. I hope so. I mean, I can just no longer stand you. Oh, this could have been a cold open and this could have been a cold open line every single time I say something before we press record. I finally got to you, huh?

All right, well, tell us about Auto 1 then. Well, I will start this one, a little morbid, I got to say, because I think the best way into this company is going through basically a graveyard of companies that has tried to do the same. So I want you to cast your mind back to like 2020, 2021, when there was this whole wave of online-used car companies. And the pitch back then has been,

we're going to do for used cars, what Amazon did for everything else. So, you know, you buy your car online, somebody drops it off at your house. You have seven-day returns, no haggling, and also no, you know, sleazy lot that basically gives you this immediate feeling of, I don't want to be here.

I just want to get home with my car, without it. And in the US, those companies were Kavana, Shift and car loads. And in Europe, the big one was Kizu, which was a UK company. And every single one of them raised a ton of money, showed pretty fast growth rates, and the stocks actually became multi-baggers pretty quickly. And then 2022 and 23 happened, and used car prices got crushed, interest rates went up. And as we also remember, the capital markets were generally not in a good situation. And almost all of the companies that we mentioned got wiped out. So Kazoo went bust after raising, I think, over $2 billion, shift merged with carloads only for both to go bankrupt. And then Carvana almost went bankrupt

and had to restructure $5 billion of that. Oh, I remember this. But, you know, Carvana went from being the worst performing stock to the best performing stock in back-to-back years, which was just absurd, right? It was basically a penny stock at the start of 20203. And then over the course of that year, it 10xed. You know, as I always say, markets being markets. But there was one company in Europe, actually in Germany, that had the same model, also went through the same exact cycle, and is still standing and actually growing at over 20% per year. And it just started having its first profitable years. And that's Auto1 Group. And this business checks, I'll say quite a lot of the boxes that we usually look for. So it's a two-sided

marketplace with lots of physical infrastructure to defend its positioning, basically the mode that we always talk about. It's Tam. Total addressable market is also huge. It's still founder led, and the founder has lots of skill in the game and is benefiting from the still fragmented market that the European use car market generally is. Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, accordingly and sharing everything we learn with you. This show is not investment advice.

It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Sean O'Malley and Daniel Manker. I know the two of us are not the best people to talk about the process of buying a car, because we're both way too much of stingy value investors to spend a lot of money on a new vehicle. And I think the only car I've ever bought was one from my parents at a sweetheart price. And unless I missed a major life update in your end, I'm pretty sure you don't own a car either, Daniel.

No, no, I don't. But where I live, you know, which is close to the city center in Hamburg, it also doesn't really make sense to own one because usually by just taking the subway or the boss, you're way faster. I do know, though, you're very interested in cars, which is very fitting with your journey. identity. Well, I would say that I'm not the most interested guy in cars, but I do like it. And I actually never thought of Germany as a country that's much more focused on cars than other countries until I traveled more. And I figured out that we do pay a lot more attention to cars. And

obviously, there is a big focus on German cars. We actually had a two-minute debate before we started recording here on, I would say, the hierarchy of car points and where Lexus is placed. because I personally didn't know that Lexus was actually considered a luxury brand because here in Germany and most of Europe, you don't usually take them. And I would personally not choose them over a Mercedes, Audi or Porsche. But I did consider, okay, Sean, you definitely opened my eyes that Lexus are luxury cars. I got to say that. And you're right.

There are certainly people with more car experience than the two of us, which I probably proved, but not knowing that Lexus is a luxury brand. But I do like to think that I at least have some sort of idea of how the market works. works because there's this big German YouTuber who's making videos where people basically come to him and then sell him they use cars. And those are like 90 minute videos where they basically go through all of the details, what you need to look out for. And then they also have this price negotiation going on. And I do not often have 90 minutes to watch anything, but over the last few weeks, I've watched a dozen of those videos at about two and a half time speed during lunch. And I naively

like to think those videos actually gave me a bit of a baseline on the business and the industry. And it's probably the Dunning Krueger effect and I'm currently on the peak of mine stupid. But also on a more professional note, I do know somebody who works for a competitor of all the ones. So I at least try to absorb as much knowledge as possible in the last few years. I'm not going to let you go any further without explaining to me why you watch videos at two and a half times speed. I mean, it depends on the videos, right? But I think I've trained myself to get there because there were these good old COVID days at university. And it saved you quite a lot of time

when you were able to watch the recordings at two and a half time speed. I would be so overstimulated, Daniel. That is obscene behavior. I don't know anyone who does that, to be honest with you. But getting back to today's episode, how about we start with the problem that Auto 1 and all the international players you mentioned wanted to solve? And that is to say, why was there a need for an Amazon-like marketplace

for cars. So historically, you had two options when you wanted to sell your car and both are, I would say, suboptimal. So option one would be that you sell it privately, consumer to consumer, usually through classified websites. So to me, that would be a nightmare if I would have to do that because you have to photograph your car, you have to list it, you have to deal with complete strangers who come to your place and try everything to pay as little as possible for your car. So you kind of get the idea. And the reason why you usually do that, at least in theory, is because you want to maximize the amount of money that you can get for your car. And I say in theory, because you still need to negotiate a good price when you do that.

I'd be in trouble then because I'm a real pushover as a negotiator. I just get worn out kind of quickly. And then, yeah, I just want to pay the asking price so I can move on. More than a few times at flea markets. I'm sure I've paid a much higher price than I could have if I really haggled. I'm the exact same. I couldn't think of anything worse than spending my time negotiating prices. I've also learned that this is maybe to some extent cultural.

So to me, there's a sort of disrespect giving me an outrageously high price only to start a negotiation, especially since there's always this information asymmetry, especially when it comes to cars. Anyway, I just guess that shows how bad of a negotiator would actually be. And then the second option that we haven't yet talked about is that you go to a dealer and sell your car to the dealer, which saves you a lot of trouble. But the dealer obviously wants to make money too, so you will get a lower price. So car dealers, in my experience, typically make a margin between 5 and 15% depending on the value

of the car that you bring them and also, again, your negotiation skills. So in the past, you basically had to decide whether you want to maximize how much money you could get by selling it consumer to consumer or to go the more comfortable route and sell it to a dealer while making at least 10 to 15% less on the sale. And what Auto won and also Carvana and these few other players that we mentioned did is basically introduce a third way. So they call it consumer to business or C to B. So instead of trying to match the seller with another individual buyer, Auto One just buys the car from you directly so that they can give you a near instant price off of their data. And then you just do a quick drop off

and an inspection and you get paid almost on the spot for your car. What I think is interesting about the model is that it goes against the general wisdom that we've seen with many tech companies in the last few decades, which is really to try and keep their business as asset light as possible, right? I mean, if you just facilitate the transaction between a buyer and a seller, you take on basically no risk, and more often than not, you're going to be running a pretty reasonably high margin business. But that's not what it sounds like they're doing.

They're taking the vehicles on balance sheet. Yes, and this does remind me to some extent of this whole first party versus third party debate, which we talked about with the e-commerce companies. So is it more profitable to just match buyers and merchants, as Amazon has done for a while, especially in the beginning, or to buy products yourself and then sell them to consumers as coupéying, for example, famously does in South Korea. And so depending on which of the two companies you ask, I would assume you will get very different answers. And in this case, and we'll get to why that is, Auto One is doing it to strengthen the ecosystem. So Auto One is a vertically integrated player. And as I brought up Amazon and have

basically covered half the e-commerce companies in the world here on this show by now. We also see that the successful ones all move to the more acid-heavy and vertically integrated models over time. So it's not immediately more profitable, but it builds the strongest modes. At least that's what we've seen. And that's also why Auto-1 seems so interesting in doing the same thing right now and going that path. So they were unprofitable for a while since they decided to go this more acid-heavy and vertically integrated route. But they can now reap the benefits as competitors are mostly gone and have left the market, and they now seem to do reach scale where they can profitably operate this business model.

So before we dig deeper into the business model, maybe you can just give us some sort of idea of what the used car market in Europe looks like and, you know, what's the size and how's it compared to the U.S., all that kind of stuff. You say that as if you would know the size of the U.S. used car market. Don't underestimate me. I know things sometimes, but no, I'm being polite. I don't want to steal your thunder. Thank you, Sean.

So the European used car market is pretty big. And there are about 40 million used car transactions a year compared with only about 10 million new car transactions. So on a value basis, the whole thing is worth about 700 billion euros a year. And the cars are pretty old. So the average car on European roads is about 13 years old. And in many countries, most people will actually only go out and buy use cars, not new ones. That's actually something that I didn't know before I started my research you.

You're from an investment perspective. I just never understood why anybody would buy a new car, right? I mean, there's a saying that you lose like 30% of a car's value as soon as you drive it off the dealer's lot. And, you know, I'm sure it's an exaggeration, but cars do lose their value incredibly quickly. Except for some special Ferraris or Lamborghinis, maybe. And that's why you own Ferrari through Exer.

But, you know, you don't seem all that confident in this new EV Ferrari. You don't seem to think it's going to hold its value very long. I'm actually quite certain it won't, but you're right. Buying used cars generally makes much more sense. And honestly, for most people, it's not so much just the investment perspective. It's, you know, the simple fact that they are cheaper. Perhaps they would like to own a brand new car, but they simply can't afford it. And so either way, used cars are an everyday consumer market that's not only huge,

but also incredibly fragmented, especially here in Europe. According to McKinsey, the top 20 used car retailers in the US have about 20% market share, whereas the top 20 in Europe have less than 10% market share. And if you would go and look at the data that Auto 1 gives you, they estimate that only 6% of the market share is sitting with the top 20 in Europe. So the reason is obviously that it's much harder to scale a business across dozens of different languages, regulations, and also just different taste and demands when it comes to cars.

So the US market is much more homogeneous. And I would argue that this is probably an advantage for Auto 1. you know, operational struggle that usually comes from the fragmentation of the European market. Because according to Auto 1, they sell something like 60% of transported cars in a different country from where they were sourced. So to be completely honest, when I first heard that fact, that made me a bit skeptical about the business model because I know that here in Germany, many cars that get into an accident are sent to a neighboring country in the east.

So, for example, Poland. And they are then getting repaired there cheaply and then make their way back to Germany. So we've talked about this before personally. And it sounds like you're saying there's this arbitrage-type deal where a dealer would buy a crash car in Germany, send it to Poland, have it fixed cheaply. And then what I think you're saying between the lines is that, you know, it's not necessarily a completely honest repair that always happens. And then it gets sold back into Germany again.

Is that right? Yes. I do believe that happens quite often. And, you know, it's just that the actual damage then isn't documented. and the dealer will tell the customer that it only had, let's say, a small issue and was thus, for example, newly painted. And that's one of the reasons why buying a used car yourself can quickly become a bad experience, at least if you have absolutely no clue of what you're doing, as the two of us. So there's no way that, you know, I would catch something like that, which is

why I would obviously never trust a good deal when I see one, because I feel like certainly I will buy a car that has been told it before and I just don't know about it. But this is obviously not what's happening with Auto 1. Their cross-border arbitrage is more about. benefiting from the different tastes or even the economic stages of countries in Europe. So in the Nordics, for example, people drive significantly more EVs, electric vehicles, than here in Germany. And electric cars make up about a third of the cars on Nordic roads. In Germany, I think it's 7%.

And two out of three newly sold cars are EVs versus, I think, about 23, 24% of newly registered cars in Germany. So the point being, a combustion engine Volkswagen in Norway, for example, will a lot of likely not find a buyer there, and thus the price is obviously low. In Germany, you'll get a much better price for that same car because there's still demand for it. Now, if you are a Norwegian car dealer, you might know that as a fact, but you can't really benefit from it because it would be way too expensive for you to take that car, send it to Germany and then sell it. But Auto One has over time built the exact scale to do that and, you know, profitably bring your car from Norway, for example, to

Germany and then sell it at a higher price in that market. I think that's actually a pretty unique dynamic, right? Because for most businesses, there's no advantage in opening a shop in a totally different part of the world. For example, you know, if McDonald's opens a new place in D.C., I might benefit from it, even though I don't go to McDonald's very often. But you definitely, all the way over in Germany, are not going to benefit from the fact that there's a new location opening near me.

And even for a company like Uber, the advantages are less straightforward, right? I mean, obviously, I benefit from Uber operating more in Germany when I come to visit you, but for my daily use of Uber, it would have no effect on me whether Uber expands more or less into the German market. And with Auto 1, that does sort of seem to be different, right? It can be highly advantageous for you in Germany when Auto 1 expands into the Nordics, because now you get a Volkswagen cheaper in Germany since it's sourced in Norway. So where are they in terms of actually penetrating this giant market?

So last year they sold about 840,000 cars, and that's growing at about 22% year over year. And that is supposedly a market share of about 3%, which is for the most dominant operator in Europe, not a lot of market share. At least it doesn't sound like that to me. And management actually openly talks about a path to 10% market share. So this is still a dominant business, but in the early innings of where they could go in the next couple of years. If we decide that they can plausibly more than triple their market share in a growing market, nonetheless, then I can already guess this is a stock that's going to be an addition

to our intrinsic value portfolio. But I always get too excited too early on in these pitches. So we should probably first talk about the company and how it got it to start. Well, I'm glad I already got you excited about it. Let's say like that. So, Audubon was founded in Berlin in 2012 by Christian Berthamann, who is still the CEO. and Harkin Koch, who's now the chairman. And when I looked at their backgrounds,

I was not really surprised to see that neither of them actually comes from the car business or industry. I would personally say that Germany is probably not famous for its startup culture, but if there is a place where young founders go, it's certainly Berlin. And the Auto 1 founders had worked in the consumer and its space before and then decided to basically

apply the experience that they got from that industry and then apply it to a different industry. And at the beginning, I mentioned, you know, the graveyard of companies, the similar business model. What Christian and Harkand did differently was the order in which they build their platform. So most businesses focused on the consumer-facing market, which makes sense because, you know, that's where usually the margins are significantly higher. But they're not to build a two-sided marketplace. You need to deliver, surprise, surprise, value to both sides of the market.

And that's why they started with a sourcing mechanism for the dealers. So the brand of Auto One's consumer sourcing is Via Car from Then Auto, which means we buy your car. At the moment I realized that that website is owned by Auto One, I knew I had to make an episode about this company, because this won't be relatable to any US listener. But Via Car from Than Auto has one of the biggest marketing campaigns in Germany. It's actually close to impossible to not know this brand. And I don't know if that tells you anything, but they advertised with Michael Schumacher's brother. And Michael Schumacher, for everyone who doesn't know, is one of the most successful Formula One drivers of all time, right? That's right. And to be fair, Ralph Schumacher was also a Formula One driver. But of course, it's kind of hard to look good when you compare to your brother, who is one of the most successful drivers of all time. The funny thing is I was one of the few people who didn't know about the ad for the longest time because, as you know, I don't watch TV anymore for many years now. And thanks to YouTube Premium, which is one of the best subscriptions I have, obviously not.

not an ad for YouTube. I don't get ads on YouTube either. So those ads were completely dominant, but I didn't know about them. I only found out because of this meme culture that is basically now created through the ad and also the personal life Schumacher. And through those memes, I found out about the ad. So in my research now, I found that Auto1 has websites with the same name in the local language, of course, for pretty much every European market they're in. And they use the same marketing strategy there too. So high frequency ads. on pretty much every possible medium. Let's take a quick break and hear from today's sponsors.

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Plus 500. It's trading with a plus. Spending my days digging through the financials of the world's best businesses, and one thing becomes obvious fast. The companies that win are the ones that can actually see what's happening inside their own operation. And these days, they say that every day your business is late to AI, you fall two days behind. The competition is only moving faster, but fortunately, there's NetSuite next.

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Back to the show. See, I think we need someone to do some research on what I call the meme moat. Because if your business becomes a meme, it can lead to disproportionate returns, right? I mean, that's for sure. From GameStop to Ryanair's brand team, which we talked about in the Copa Airlines episode recently, Some companies have exploited internet culture and retail investing to a huge degree. And I mean, seriously, if your brand is consistently going viral online due to its sense of humor, that is some kind of advantage.

I mean, the first company that I immediately think of is Duolingo. But that's also the company where you see that over time, if basically your entire marketing engine is built on viral memes on, let's say, Instagram or TikTok, that can also hurt your business. I think in this case, the good thing is that it doesn't really matter if people find the ad annoying because if you want to sell your car quickly, you just go with the first website that comes to your mind. And by now, at least you in Europe and especially Germany, that will almost certainly be via car from that auto or we buy your car. So step one was just how do we buy cars from consumers at scale? And this is basically done by this website. And then in 2013, step two came into the game, which is that they launched Auto1.com.

which is the dealer marketplace. It's a bit confusing because it has the same name as the company, but Auto1.com is the dealer marketplace, the website. So that's basically where you have the wholesale auctions, which gave them the demand side and crucially also gave them the pricing and the transaction data. And then it wasn't until, I think, 2020, so eight years in that they launched Auto Hero, which is the consumer retail business. So a lot of different websites, all under the Auto One umbrella.

And that's basically Auto Hero, the part that looks most like Carvana, which is, you know, a lower margin part of the business, focus on the car dealer side. And why that's, you know, a lower margin business. And many people say, well, why do you even expand into it? That's also where you build or create these competitive advantages. It's kind of similar to Amazon or Melly building a logistics network. It's quite expensive and unprofitable for the longest time. But it is an advantage for merchants who don't have the capacity for shipping, cars themselves, and also provide better customer service. Also, I mean, we live in 2026. So every good marketplace is just as much

a data business as a retail business. And we talk for hours about that when we cover the lending and ads businesses of e-commerce players, but also, you know, Uber. And other one of the most critical things is to pay the right price for a car at the we buy your car brand. Otherwise, obviously, your margin is gone. Oh, come on. Don't be afraid to use the German, version of it. Virkalfen-Dynato. I mean, I'm having flashbacks to my high school German class. But perhaps you can quickly explain what data exactly matters and how the process works for

people who do decide to sell their car on Verkalf and Dinado. Like, does it just happen over the internet? Or is there first this process of meeting online and then an in-person meeting that happens subsequently? Sean is a bit shy, but he actually took German classes in high school. and he's pretty good. So maybe one day we will drop an episode, which is coming out in German. So, yeah, getting to your point, you have to go to the website, and there's basically a process

that is starting. And it only takes about three to four minutes. And I actually tried it myself, so it is very fast. And you basically upload pictures of your car, and then you list the most important details. And since Auto 1 has realized transaction prices for pretty much every car out there with pretty much all imaginable conditions, it has a pretty good idea of how much your car is actually worth at that point. So they give you a price for how much they would buy the car. And they're pretty

proud of the fact that by now 90% of the price finding works with their own AI models. Well, and then, if you like the price, you just go to one of the 750 pickup stations where a dealer does a final 20-minute check, including a test drive, and then you get your money. Daniel, do I want to know whose car you uploaded pictures of to do this? No, no, no, you don't. Okay, well, we'll leave it there then. So at the pickup station, there is not the normal haggling process, right? Because that's exactly what Auto 1 was supposed to prevent for you as a private seller. Right.

As long as the car is in the condition that you pointed out on the website, you should also get the price, or at least very close to the price that was recommended by the website before. And as far as I know, that works in practice. So to be fair, the prices are certainly on the low. end of what you would get for your car if you, for example, sell it yourself through a different channel, consumer to consumer, for example. So there's still this trade-off between comfort and price, at least to some extent. But if you ask me, I mean, I would much rather get slightly less money for a whole lot more comfort and also speed in the selling process. And one more thing I want

to mention on the data is that Auto 1 has the advantage of being on the buyer and the seller's side of the car. Other classifieds have tons of data too, but it's only asking prices. So they don't actually see what the car sold for or, you know, what condition it actually was in since they only connect buyers and sellers. Auto 1 actually sees all of these things. So that basically gives them a way better understanding of the actual prices, the actual conditions, and how much buyers paid and sellers got. I would imagine this also plays a role when we think about AI. We always talk about proprietary data sets. And that's one of the most important things in AI world. And it does seem that Auto1 has that. That's actually something that the CEO pointed out in his latest shareholder letter.

So when he was asked about the risks of AI and also potential AI startup clones, he basically said that they could try to scrape the entire internet, but wouldn't be able to access or find the data that Auto1 has because it basically doesn't exist anywhere else. And beyond that, you also have the huge logistics network to get cars from, for example, Norway to Italy, and the partnerships with tens of thousands of dealers and the eyeballs of 100,000 consumers. So this is certainly a capital-intensive business with massive barriers to entry, and I did not fully get where AI should come in and disrupt this business. There's a pretty strong flywheel with this company, too, I would think.

More transactions make the pricing models more accurate. a more accurate pricing model lets them offer sellers a slightly better instant price and quote dealers more tightly. So more sellers and more buyers come back, which means more transactions, which makes the whole model better again. And around it goes. And so to me, this looks like auto one might become one of those scale economy shared businesses that Nick Sleep loves to invest in. And he's one of our favorite legendary investors. And every gain and scale lets Auto One. One, quote, sellers a slightly better price and dealers are slightly tighter spread. And instead of pocketing that as margin, they pass it back to both sides to pull in more

volume. And the other side of it is network effects. So to make a two-sided market work, you need both sides of the market actually to be there, obviously. And on a website, dealers won't come because there are no customers bidding to offer them a good price. And the customers won't come because there are no cars that are actually worth showing up And it's incredibly difficult to break into this business because every new entrant now has to

compete with the scale of Auto 1. And if you're a dealer, you won't switch to another player who can only offer, let's say, 10% of the volume that Auto 1 can offer. So there's just no incentive for both dealers and also the buyers to switch. And just to point out the scale again, I mentioned that a minute ago, Auto 1 works with 60,000 dealers, of which about 35,000 actively bought a car, at least one car, in the most recent quarter. And, you know, they also sell to over 100,000 consumers. And at least that's, you know, my guess, they sold 100,000 cars to consumers last year. And since I assume there are few people out there who buy

more than one car, I also guess that, you know, the number of unique consumers should at least be in the same region. I think that's a pretty fair assumption. You briefly mentioned, though, the founders and that they're both still involved in the business. So I assume they also both own a good chunk of stock. Is that true? They do. And they actually own quite a lot. So, So Christian Bertraman, the current CEO, owns about 12.5% of the company. And Harkang Koch, who is now the chairman, owned about 9%. There's another detail that actually quite like, because usually we pay close attention to incentive systems, and the CEO actually just got a new one.

So his new deal is a five-year term running through 2030. And the key hurdle rate is the share price has to hit 75 euros, measured as a three-month average at least once by the end of 2030. So currently, the stocker's price at about 20 euros and it wasn't materially higher when this deal was signed. So that makes me assume that the CEO does actually believe this is a realistic target to head. And the interesting thing is that the new CFO got a bonus tied to the same structure. And that kind of matters to me because the CFO in the future will play a significantly more important role at Order 1 because the company is now growing its financing business as well.

We'll talk about that. And I actually like that Auto1 seems to be taking a much more cautious approach there in their lending business. And for example, Carvana, which is good because I don't want to own a car retail business where half of its gross profits are coming from subprime loans, which is to my understanding, sort of the situation like Carvana is in. It's certainly not Auto 1's approach, which is good. I mean, generally there's close to no subprime lending in Job's car market. And to get back to the CEO payment one more time on the size of the bonus payment, the CEO would get a payout of 400 to 900 million euros, basically depending on how much the stock will actually be worth at the time. So the 900 million euros would only be possible if the stock is, I think, was about eight times higher than currently is. And there's also a second factor that has to be met, and that's adjusted EBITDA.

And I don't want to get too much into the details. And of course, we're not huge fans of EBITDA, but generally, I do like the idea that the CEO gets paid a good amount of money when the stock credouples in the next four years. And beyond that, his salary is actually quite low. I think we talk about 500K. So his main way of making money is really the stock, both because of this package we just talked about, as well as his 12% stake in the company. Yeah, if anybody here is a 500K is a low salary. I think we should emphasize that this is in the context of talking about what other CEOs

make. But yeah, earlier you walked us through the process of selling a car on Virkalton Dynato. We buy your car. And so now what happens after Auto1 has bought the car? They have a couple of potential routes. So the first pathway is Auto1.com. And again, it's a bit confusing, but that's their wholesale marketplace. So basically has the same name as the overall company. And so whenever I say Auto1.com, that's being the marketplace. And that's one of the options where the car just get sold to a dealer somewhere in Europe, and about 90% of cars actually take this way. And the friend that I mentioned earlier, who works in the industry, is doing sales for a competitor of Auto1.com. So the turnover channel, as he's telling me, is quite high. And if you sell a lot

of cars, you can actually also make pretty good money in this business. So for Auto1, it usually takes about a month to turn around the entire inventory. So while you take on a lot of capital, it's also not tied up that long. And then the second, the second. option is for the car to be sold on Auto Hero, the retail channel. So if they think the car will earn more money, if it's sold directly to a consumer, they send it to one of their big reconditioning centers, they fix it up, they photograph it, they list it and deliver it to a buyer's store with financing if they want to and also a return policy. So that channel takes about three to four times longer. So Auto One has to hold on to the inventory much longer compared to the

wholesale channel. And I think that three to four months seems quite long. And many of the dying companies we talked about at the beginning also suffered from elevated inventory levels before they went out of business. And does it sound like a good thing for their cash conversion cycle? It does not. But I did listen back to the earnings calls from the last two years. And they talked about inventory and their strategy. And a couple of them, obviously, because it's an important topic.

Back in late 2025, the framework was basically, you know, we're deliberately building up selection. And it also made sense because at the time, they massively ramped up the investments for the auto hero brand marketing. So pouring money into making Auto Hero a household name across Europe. And similar to the Via Car from that auto brand, and you can't drive a bunch of new shoppers to your side and then leave them with nothing to buy. And generally, retail just has longer days outstanding than merchants. So that's kind of the nature of the game that you're playing. a retail car, you know, sits while it gets refurbished, photographed and delivered versus a wholesale car that's, you know, gone in about a month. So a chunk of that is structural and I wouldn't say that it's a problem that Auto One specifically has.

But on the latest earnings call, the CEO also talked about a new Auto Hero trading system with a new stocking algorithm that's specifically designed to turn inventory faster and in a lot of cases actually also hold less of it. So to me, this does signal that they do want to improve the turnover in the retail side of the business as well. How about we walk through the economics a little more here? I have a pretty good understanding now of why the two-sided marketplace works and why it makes sense for both dealers and consumers to use the Auto One ecosystem. You have a win-win dynamic for sure. But how much money does Auto One actually make from all this?

I assume the consumer business is probably more profitable, but you said 90% of their volume actually goes through the dealer channel. So the first thing I should say is that revenue is basically meaningless in this business because if I sell a car for 25,000 euros, I broke 25,000 of revenue, but I maybe keep a thousand or maybe 2,000 of gross profit. So the car is 85 to 90% of the price. So the only number that matters is actually gross profit per car, which everyone calls GPU gross profit per unit.

So on the wholesale side, the merchant business, they did just under 750,000 cars last year, with an average price of around $8,500,000. And they made about $1,000 of gross profit, GPU, for that cost. That's about an 11 to 12% gross margin. And on the retail side, Auto Hero has only about 100,000 cars sold, but the average price is doubled, so around $17,500,000. And the GPU is about $2,600. 100 euros. So 15% gross margin. So retail car earns, you know, 2.5, 2.6 times the gross profit

of a wholesale car. So is the longer term goal to see a mix shift from wholesale to more consumer focused sales? I'm sure they would take more growth in the consumer channel, which, by the way, is growing at a fast clip and also outpacing the wholesale channel. But it's only one level to pull. So the wholesale channel's margin is much lower, but the faster turnaround makes this business actually way more profitable than it appears at first glance. So I would say the dynamic here is a bit similar to the fallacy of thinking that a company is fantastic when it has 50% return to an investor capital. Generally, obviously, everybody would agree with that.

But if there are a few reinvestment opportunities in the business, then even the best return on investor capital doesn't actually mean it's a fantastic business. And in this case, it's somewhat of the opposite, where the business channel looks worse than it actually is because of the wholesale channel turns inventory. every single month, then they recycle the capital that they have invested about 12 times a year. So if you make an 5% EBITDA margin on each car and you turn the money 12 times, the return on the capital that is actually tied up, it's something like 60% before your account for overhead costs and all of the other stuff.

So to me, 60% on the tied up capital sounds like a pretty fantastic business. And the retail car obviously earns way more per unit, but it also sits for three to four months. and, you know, it eats into reconditioning, delivery, marketing. So there's just a lot of costs that is basically tied up with that capital for a much longer time. And I would say it's also important to look at operating expense coverage. So after accounting for the operating expenses, units sold to a merchant barely make money anymore. So the margin is very, very slim. So in a best case scenario, you have operating expenses come down over time.

We see a shift toward retail volume. and then also we see faster inventory turnover. Kind of all of those three things combine. That's how you get to what management wants, 10% market share, significantly more operating leverage and significantly better company than we have seen in the past few years. And we already see the first two happening,

and the other one is actively working on further improving turnover to also get this third engine going. You had it before at another part of the business that might become a bigger margin driver over time, and that's financing. And you already said it's not quite like the Carvana business, but just to rehash it, Carvana makes about half of its gross profit from what you might call subprime auto loans. So it's more of a low quality lending business than even just a regular car dealership.

And from what you've told me about Auto 1 so far, that is not at all what they do. Yeah. So again, Auto 1 doesn't make meaningful money from subprime loans at all because in Europe, subprime auto landing basically, I'd say it doesn't exist the way it does in the US. I mean, the regulation is obviously much stricter. You also have capped interest rates and the whole market skews prime and near prime. So the creditors profile is structurally different from, you know, costs or consumers in the US. And it's estimated that about 15 to 20 percent of the entire US auto finance market is subprime, whereas in Europe, that number is closer to 2 or 3%.

So do they lend to both sides of the market, the consumers and the dealers? I know that's something we've seen with some e-commerce players. And when we talk to Grabs' CFO, Peter O'e, recently he said that Grab focused on loaning to drivers first, since they had more data on them that was much better than what they had on consumers. Yeah, that's the difference between Grab and, for example, the big e-commerce players like Melly or C-Limited, because they obviously have great data. on merchants as well, but they also have incredibly valuable data on their consumers,

which obviously makes lending to consumers a bit less of a black box, as it might have been for grab, especially in the beginning. Auto1 is also lending to both sides of the market. So on the dealer side, they're lending to basically fund the inventory, the dealers buy, and on the consumer side, they're financing the auto-hero buyers. And the interesting evolution is that historically, Auto-1 was basically just a lead engine, so they would hand the customer off to some other lender and then just, you know, make this little margin on the referral, as we've seen with a lot of businesses when they started out the landing

business. Now, though, they are vertically integrating into it. So that means they originate the loans themselves, then they securitize them. And what that means is that Auto One now makes the loan itself. It's the lender and the customer owes Auto One. And that's a way more profitable way to do it, but it also ties up way more capital because Auto One actually has to go. out and fund the loan and then wait years until the loan is actually we paid. Let's take a quick break and hear from today's sponsors. Curious about online trading, but haven't taken the first step yet. You're not alone. And Plus 500 futures is a great place to start. The futures markets are moving fast. And with

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All right, back to the show. And I guess securitizing is how they get that cash back, right? I mean, they bundle thousands of these car loans together and then sell the bonds that are backed by the loan repayments to outside investors. And, you know, Auto 1 then gets money through the sale of those bonds and the buyers get the interest paid on them. And, you know, with the money that Auto 1 is getting, they can go out and then fund new loans and then the cycle just continues. And the best way to check the quality of the loans is to see how demand actually looked and the interest rate that was charged. So Auto1 prized their second consumer ABS and ABS just stands for asset-backed securities at about 250 million euros. And it was heavily oversubscribed.

And if it's oversubscribed, it just means that there are a lot more buyers competing to get their hands on the bonds, which also means that the seller, which in this case is Auto 1, can push up the price. and at the same time push down the interest rate. So I think the interest rate ended up at about 87 basis points over the Euribor, which is the benchmark rate and the rate banks lend to each other in Europe. And at 87 basis points over means that Odewan pays the benchmark, so the Euribor rate, plus 0.87%. And that spread is basically the risk premium that investors demand for lending against these loans. And you know, the rule of thumb is that the tighter the store,

spread, the safe of the market things, the collateralists. Maybe I went into way too much detail here, but it kind of gave me flashbacks to my university class of pricing bonds and all of it. And I thought, if I would suffer through it, all of our listeners have to too. No, I think it's a good learning point. And I feel much more comfortable knowing that there's no subprime lending going on here. But the downside is that the upside from the lending business is now going to be lower. Right. And so if you take away Carvana's profits from selling loans, the rest of the business wouldn't necessarily be generating particularly much in profits. That's right. So no subprim means significantly less risk, but it also means they will most

likely never get financing to reach 50% of gross profit as Kavana does. So I see financing here more as a third business unit and potentially in the future a margin level for them. And it's also why the new CFO is coming in for, which we'll get to you, but it won't take over the business, which, to be totally honest, I kind of like. We looked at a lot of companies now that do a lot of financing, and we often talk about the sort of asymmetry there. If everything goes well, that's perfect. But if things go south, you lose a whole lot of money and basically your entire business. Of course, the one caveat that we should point out here is that compared to most other businesses that we looked at, which were all in emerging markets, this is a company

in Germany. So, you know, the lending rates, the interest rates and also the risk of the lending businesses is significantly lower than all the other businesses that we looked at in the past. I would still want to buy Auto 1 for its core business and not for lending alone. So I'm generally not a huge fan of landing businesses. But if they strengthen the overall ecosystem and they come with limited risk, which again, I think in this case is the case, they are a great addition to the potential flywheel of the company. How about we talk competition?

You've got local car dealers. you've got the classifieds giants and then you've got some other integrated players. And so walk me through the three different competitor sets here and where you see the biggest risk for Auto 1. And if you think any of them are actually a particularly, you know, concerning risk. So in theory, the advantages of local dealers are trust within the local community and also a physical presence. I'm not sure how much value I give the trust factors.

because if you are a repeat customer, you might know your dealer close by and you actually trust him. But I believe that most people buy a car maybe once or twice in a decade. And I don't know, that's not really enough to build trust with a dealer, in my opinion. So I don't believe most people rank physical dealers higher on the trust scale compared to classifieds or companies like Auto 1. I do believe the fact that you can actually see the car before you buy it matters though. So if you buy a car on Auto Hero, you don't necessarily see it in person before it's delivered. And that's not too bad because Auto Hero does have a pretty good return policy. So you can actually send the car back and there are no hidden fees.

Still, though, I think I would like to see the car before I actually buy it and you take it for a test right, not that I would find anything wrong with the car. But still, just so I can, you know, save myself the headache of actually sending back a car if it's not the right fit. So I'm imagining you just pouring over in list reviews. Or, I mean, how did you figure out that things work so seamlessly? Yeah, I did go through some reviews and then I watched some videos at, of course, two and a half times speed where people actually got their car from Auto Hero. And I also talked to some people who bought their car there. And they also have, you know, everybody can look that up, an NPS score of 70,

which is pretty good. I mean, for context, the NPS scale doesn't go from zero to 100. It actually starts at minus 100 and then it goes to 100. So 70 is really good. It's not like a 7 out of 10 or something like that. So you might even give, based on these numbers, the trust argument to Auto 1 over local dealerships. And just overall, they obviously lack the advantages that is making Auto 1 so attractive, right?

They have no pan-European operations. They have no chance to have the same scale at any time and so on. And I would probably say that the bigger competitor, at least for the consumer-facing business, are these classifieds like Mobbile.com, which is the leading classified in Germany and auto-scor scored 24. And they are not vertically integrated like Auto 1. And as we mentioned before, they only connect buyers and sellers. So they don't actually touch the cost. And thus, they also don't have the data that Auto 1 has because they lack the opportunity for these arbitrage international price differences. The only competitors that would actually worry me would be other similarly

vertically integrated marketplaces. But as I mentioned in my intro, which is kind of why I did it, they basically don't exist anymore. There's one name that once again is linked to our extra thesis. And there's a company called Aramis. And Aramis is part of Stellantis and their entire ecosystem. And in theory, it has both a B2C and also B2B business. I have to say, though, the B2B business is way smaller than other ones. So it's closer to the classifieds like Mobbilla.com and OdeSkard 24.

And Aramis is actually flatlining while Auto1 is growing at growth rate. beyond 30%. You know, I had this bad feeling already that you were going to talk about a declining business whenever you mentioned Stalantis. Well, Salantis is not in the best shape right now. That's true. And just for context, for the listener, Exo also owns a good chunk of Celantis, unfortunately. So technically, we have a stake in the company as well, although our extra stake is, you know,

certainly used as a Ferrari proxy. Is there any advantage to being backed by a brand like Salinas for such a marketplace? I mean, I could imagine it might help with having privileged access to maybe vehicle supply. It does. But on the other hand, that's also, to some extent, would limit it. Because if you are, you know, backed by Celantis, they obviously have a say in which cars you can sell. And that means you're more or less a retail channel for that exact brand.

And you're not really an actual competitor for a two-sided international marketplace. like Auto 1, which can sell whatever brand they want. So, for example, Alexis, you know, if there's enough demand in Europe for those cars. But it's kind of an interesting point because the OEMs in the background, like Salantas, like Mercedes, like BMW, they are interesting and I consider them to be a risk. So when I first looked at this business model and the entire industry, I thought that the biggest risk might be that OEMs try to take some of that used car market share themselves because a lot of the high-quality auto one supply actually comes from the leasing

arms of the OEMs. So those are the two to four year old single owner, well-maintained vehicles coming off lease contracts. And historically, a lot of these flowed into the open wholesale market where then auto one could buy them. And they are disproportionately important to merchant GPU because obviously well-maintained, predictable cars are the best fit for cross-border arbitrage. But there was a trend that started more recently that OEMs now want to keep the

those off-lease cars inside their own certified used car programs. And I think it makes sense because if you think about all the work and capital it takes to actually build and market that car, then you only benefit from it once, there's certainly the goal to benefit from that car multiple times and sell it when it's used because this is just a huge market. Again, it's a 700 billion euro market and it makes a lot more sense to at least try and keep as many of them in the ecosystem as possible. And how much of Auto One's car supply comes from these leasing fleets?

Well, I wish I knew, but unsurprisingly, Auto One doesn't disclose that. I kind of tried to get to some ballpark number. So the biggest sourcing channel by far is vehicle from that auto, which brings in about 2,300 cars per working day. So call it more than half a million cars per year. And if you then look at the total number, which is 840,000 cars, that's about 60 to 65% of the entire supply. So the non-C-2B supply splits into dealer trade-ins, ex-rental cars,

and then these off-lease cars that we were talking about. And again, those are like the special cars that the OEMs would actually like to have and have their own certified programs because they have the highest quality. In the broader European use market, off-lease and X-fleet cars together are roughly 20 to 30% of all used car transactions. But since Auto 1 is slightly more C2B skewed, I would say that they're probably below the market average. So I would guess that it's off-lease exposure is probably a bit below the market average as well. So, I don't know, maybe 15 to 20 percent of Auto 1's volume is actually this awfully supply that the OEMs want to get back.

Well, and besides the problem of just general volume loss, those are also the highest quality cars, as you mentioned. So losing them would also hurt the brand to some extent. because people who shop in the higher quality end of the market are going to be less likely to find cars on Auto 1. On the one hand, that's true. But I also believe that people who actually want to buy these high quality cars might just go to the certified programs generally, right? They don't first shop at Autohero or Mobbila.com, but they just generally go to Mercedes,

go to their certified dealers, and then look for exactly the cars that they want. So while I'm not an expert in this sector, I would assume that customers, who want only the highest quality used Mercedes would also go to a used Mercedes certified dealership instead of looking at, you know, auto ones or even some other classified. So while it's generally important to keep those cars on your website, I don't think it kills the business. Or are those the ones that actually have a dealer they trust? Because they buy more than just one or two cars per decade.

That's the other option. So, yeah, long story short, they either go to, you know, their. the trusted dealer or they might go to certified Mercedes BMW dealers, I don't believe that it would actually destroy the sort of flywheel that auto one has built. What about the classified sites expanding vertically? I know you said to me earlier that mobile.com is the biggest site in Germany. And I just Googled it. It seems that the site is valued at about 10 billion euros. And it's not publicly traded. So I don't know how realistic that assessment is. but that would be twice the size of Auto1, despite being a marketplace,

without any of the infrastructure and pan-European advantages of Auto 1. That's true. I would just take it as a sign of the undervaluation of Auto 1 there. But no, I mean, that's probably the other reasonable risk. And the fact that Mobile.com is not publicly traded makes the risk somewhat more realistic, in my opinion, because if they ever wanted to take Auto 1's place, they not only would need to invest a ton of money, they would also turn those currently beautiful, high margin, asset-light business into a capital-intensive, low-margin business.

And I don't know if investors would actually like to see that, but again, if they are private, you at least don't have a 50% drawdown of the stock when that happens. And the fact that they have a lot of consumer eyeballs does not mean that they can just onboard 60,000 dealers from one day to the next. It certainly helps, but in my opinion, would still be a major restructuring of the business that I'm not quite sure if the incentive is big enough for them to go for. But who knows, they can't just watch Auto Hill get bigger and benefit from the Auto One fly wheel without doing anything.

So looking at Auto One's financial, so there's a huge gap between the profits they show on the income statement and then their cash flows. So I want to ask you if you can walk us through the differences that matter here. So we have a better picture of whether this is truly a profitable. company or whether it's a company that is, you know, burning half a billion euros a year like they did in 2025. Well, if you introduce it like that, it doesn't sound that healthy anymore, I got to say. So I mentioned it already, but never look at revenue.

That's the first thing to say about this company and the industry in general. That has pretty much no meaning at all for other one. What matters are gross profit and margins, units sold and GPUs, the gross profit per unit. And the main metric that management is giving us is adjustity. and adjusted EBITDA makes sense to look at the trend of the general business. But it also strips out things like stock-based comp, which we certainly don't want to do and strip out in our valuation later. Although SBC generally is not that high, I think it's about 15 to 16 million euros.

So we certainly see much higher SPC at some of the US tech companies that we looked at. Now, though, why are cash flows actually so much lower than the operating profits or EBITDA last year? The main reason is the inventory built up. Inventory actually went from 700 million euros to 1 billion euros. So that's cash that soon or later will flow back into cash flows. And the second reason is their lending book. Ottawa is currently scaling the loan book, which means they pay out money that will only flow back into the business over time, many years into the future.

Both of those things flow through working capital inside the operating cash flow position and ultimately make the operating cash flow minus $450 million. So it looks quite bad. Odo One also reports a metric that adjusts for those. And it has the very straightforward name of net cash from operating activities, pre-captive finance and pre-inventory. Very straightforward indeed. It sounds like there's a lot of adjusting that needs to be done to make the numbers positive.

This is not yet a cash flow machine. That's true. But I think there has been quite impressive. inflection in EBITDA and net income levels as well. And again, I mean, a lot of what we see on the cash flow statement right now is working capital. So I do think this will change in the next couple of quarters and years. It makes sense. And if this is a company that can keep inflecting the way it is now, I mean, it wouldn't be surprised if the stock is much higher in a couple of years. And you know, the big question is in the if. So how about we talk about valuation now?

What did the numbers tell you about how to value this company today? This has certainly been a tough one to value. I just felt that the range of outcomes still seems incredibly wide and it really just depends on the direction the company takes within the next year or two. So as we kind of figured out, the most important thing to figure out is unit growth, what GPUs will look like, and on the merchant side and retail side, and then what the EBITDA margin will look like. So on the merchant unit growth side, I expect average annual growth of just over 10%. And the actuals over the past few years have averaged about 15%, but I do want to be a conservative and factor in that growth will get obviously more difficult over time, especially since the

merchant side of the business is the more mature part of it. So then management wants to get from, as we discussed earlier, 3% to 10% market share, which would certainly take another half decade of mid-teen's growth. And while I do see that as, let's say, possible, part of the truth is that this is a fragmented market, and it has been so for a while. So I can certainly paint a bullcase in which, you know, this is a fantastic company with a flywheel just starting to spin, and over time you will gain market share. But part of the truth is that over the last 20 or 30 years, it just has been no company that got more market share than what we currently see with only 3%. So a big part will probably be the retail side, which is much younger. So I expected to grow faster

naturally. And in the past years, it has grown at an average of 50 to 60%. So I believe that if I'd assume 20% plus growth over the next five years, that should be possible. And then the next big thing to figure out is, again, GPU growth in both parts of the business. In this case, historic figures make just a little sense to use because there was this huge bubble-induced car prices during the pandemic years. So that's one thing I wanted to ask you about earlier. How cyclical is auto? business and how big of a factor are used car prices generally. From everything you said today, I guess they're somewhat shielded because they turn the vast majority of their inventory in a matter of about 30 days. So there isn't major volatility in used car prices in a 30 day span,

I wouldn't expect. But still, I'm curious how that works. That's pretty accurate. I mean, in theory, all the one takes price volatility risk since they have the cost on their balance sheet. but historically that hasn't caused major swings and I think it shouldn't as long as inventory keeps turning quickly as you said and I also don't expect to see similarly extreme swings in used car prices again anytime soon compared to what we have seen in 2022 and 2023 which is also why I basically completely ignore the GPUs of last years

and just assume low to mid-single-digit GPU growth more or less in line with inflation throughout both channels so retail and the wholesale channel. And I would say that, you know, that's probably the most realistic assumption. Maybe conservative, but that's what I would go with. And then you're only left with an assumption to make for the EBITDA margin. And this one certainly does some heavy lifting in the model. And again, we've seen a sharp inflection in the margin in recent years.

So in 2023, it was a negative 6%, measured by gross profit, by the way. In 2024, it was a positive 11%. Then last year, it was 21%. And I model roughly a 2 percentage points increase per year, reaching 31% by 2030 in my base case. So the idea here is that they scale a larger share of each gross profit euro drops to EBITDA. And then long story short, if we apply our usual numbers, which is an exit multiple for this business, I think it's reasonable to go with about 20, a margin of safety of 20%, then an 8% discount rate. If we do all of that, the fair value comes out to about 33 euro.

per share, which would be an expected annual return of about 15%. That sounds pretty good. And how about the bull and bear cases? In my bull case, the stock would actually exceed the share price that the CEO and CFO would need to get their bonus payments, at least before I apply my, you know, somewhat conservative margin of safety. And I won't go into the details here because I think everyone who's interested in the models can download them in our free newsletter and, you know, play with the numbers himself.

and the link will be in the show notes, as always. Just in short, higher unit growth, slightly higher GPU growth, and all of that will obviously also result in a higher margin as well. So not a huge surprise there. And then in the bare case, the same thing but in the other direction, with a caveat that it shows that there's quite some downside potential when the margins shouldn't materially improve over time. Actually, the first time I modeled this,

I was surprised by how low the price is supposed to be. We are sub 10 years at that point. But then if you look at the stock chart, this is a stock that actually traded way below 10 euros just two or three years ago. So I do believe it's realistic, although it's obviously a quite severe bear case in which you basically have no growth at all. And the margins are staying at this level, which just because of the capital, a working capital changes, is quite unlikely.

So generally, this is one of the what I call destination analysis companies, meaning they are young and so far away from showing their full margin potential that a modeling exercise feels quite arbitrary. So what matters more to me personally is whether I like the company on a qualitative level and whether I feel that the quantitative side gives me at least enough of a margin of safety. And I'm actually not quite sure about the latter in this case. We don't look at a ton of small caps. So when we do, I am very glad that they're the German ones that you pitch because we can use your local insights. And I think it all sounds pretty promising, honestly, for this to be a company with a below 5 billion euro valuation, it is easy for me to see

how the valuation could explode. But again, when I look at the financials, this is a company that lost a lot of money for a long time. And while it has become profitable in the last three years, even within that period, there's still been big swings of profitability. So the business definitely seems very young, very green. And there's also a decent bit of debt on the balance sheet here, actually too. I don't know, I would have to defer to your judgment here. I mean, no matter what, based on the market cap and I think the level of uncertainty, it would be a small position in our portfolio. But really, I would be borrowing your conviction here. So it's your call on this one. That's kind of funny that a five billion euro company for you is considered a small cap.

I should also say that in about a week, there will be the first ever capital markets day of order one. and we're supposed to get, for the first time, the breakout segment economics. So we're talking wholesale, retail, and also the fintech part of the business. And that would certainly be interesting. And I would suggest that we wait until then, and I will type up an update for the following newsletter. And actually, when you will listen to this episode, the Capital Markets Day is already done. And I will have typed up an update and will publish it this Sunday in the newsletter.

Wow. There was actually some back and forth between the present and the future. And I hope everyone could follow. And with that, except for if you have anything to say, any last words for today, I would say, we call it a day. And I will end today's episode with a quote by Nick Sleep. And he said, the best returns often come from aligning with great managers, not from beating them. Given the incentive structure here, I do believe that alignment is certainly there.

And I'm at least keen to follow the company in the next couple of quarters. With that said, have a good one and see you next time. Thanks for listening to TIP. Follow the Investors podcast on your favorite podcast app and visit the Investorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or legal advice. The content is impersonal and does not consider your objectives,

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