TIP827: Auto1 Stock (AG1): Is This the Amazon for Cars? w/ Daniel Mahncke & Shawn O’Malley

Auto1 Group, founded in Berlin in 2012, operates a two-sided used car marketplace with physical infrastructure across Europe. The company sells approximately 840,000 cars per year, growing at roughly 22 percent annually, and holds about 3 percent market share, making it the largest single operator on the continent. Management has publicly targeted 10 percent market share in a market worth around 700 billion euros annually with roughly 40 million transactions per year. No company in the European used car market has exceeded 3 percent share over the past 20 to 30 years, so reaching 10 percent would be historically unprecedented and Mahncke estimates it would require roughly another half decade of mid-teens growth.

The European market is structurally more fragmented than the US equivalent. The top 20 used car retailers in the US hold around 20 percent market share while the top 20 in Europe hold only around 6 percent, a gap driven by dozens of different languages, regulations, and consumer preferences. Auto1 uses a consumer-to-business model, buying cars directly from private sellers and taking them onto its balance sheet rather than acting as a pure classifieds platform. Its Wir Kaufen Dein Auto brand in Germany is described as one of the country's biggest marketing campaigns, and the company replicates this high-frequency strategy under local-language brands across European markets.

About 90 percent of cars acquired are sold through the wholesale marketplace autoone.com to a network of 60,000 dealers, with inventory turning in roughly one month. The retail channel, Auto Hero, sells directly to consumers and turns inventory in three to four months. Last year the wholesale channel moved just under 750,000 cars at an average price of around 8,500 euros and a gross profit per unit of approximately 1,000 euros. Auto Hero sold about 100,000 cars at an average price of around 17,500 euros with a gross profit per unit of approximately 2,600 euros, roughly 2.5 times the wholesale figure. Mahncke emphasizes that revenue is essentially meaningless in this business because cost of goods represents 85 to 90 percent of the sale price, making gross profit per unit the only metric that matters.

Around 60 percent of cars Auto1 transports are sold in a different country from where they were sourced. The EV adoption gap illustrates how this cross-border arbitrage works: electric vehicles make up roughly one third of cars on Nordic roads versus about 7 percent in Germany, so a combustion engine car commands a lower price in Norway where demand has faded but a higher price in Germany where demand persists. Mahncke describes Auto1 as resembling a scale economy shared business in the style Nick Sleep favors, passing scale gains back to both sides of the marketplace. The flywheel works because more transactions improve pricing models, which attract more sellers and buyers, and approximately 90 percent of Auto1's price-finding process is handled by its own AI models trained on actual transaction data rather than asking prices.

Auto1 survived the 2022 to 2023 used car market downturn that wiped out several competitors. Cazoo raised over 2 billion euros before going bankrupt, Shift and Carloops both went bankrupt after merging, and Carvana nearly went bankrupt and had to restructure 5 billion dollars of debt before recovering dramatically. Auto1 is now reaching scale where it can profitably operate, with EBITDA margin measured against gross profit moving from negative 6 percent in 2023 to positive 11 percent in 2024 and 21 percent in 2025. Mahncke models approximately 2 percentage points of improvement per year, reaching 31 percent by 2030 in his base case, with a fair value estimate of approximately 33 euros per share against a current price of roughly 20 euros, implying roughly 15 percent expected annual return. In the bear case he warns the stock could fall below 10 euros per share.

Auto1 is vertically integrating into lending by originating loans itself and securitizing them rather than simply referring customers to third-party lenders. Its second consumer asset-backed security was priced at approximately 250 million euros, was heavily oversubscribed, and priced at approximately 87 basis points over Euribor, which Mahncke interprets as the market signaling no subprime concern. Unlike Carvana, where subprime loans represent roughly half of gross profit, Auto1 carries close to no subprime exposure, and Mahncke views financing as a future margin lever rather than the core of the investment case.

CEO Christian Bertemann owns approximately 12.5 percent of Auto1 and has a new five-year compensation deal running through 2030 with a share price hurdle of 75 euros measured as a three-month average, against a current price of approximately 20 euros. The potential bonus payout ranges from 400 to 900 million euros depending on stock performance. Mahncke acknowledges he is not fully confident the quantitative margin of safety is sufficient at current prices despite the qualitative appeal of the business, and indicated he preferred to monitor the company over the next couple of quarters before committing to a position. O'Malley noted that given the market cap and level of uncertainty, any position he took would be a small one within his portfolio.