Auto1 is only the second German company we have ever covered. The first was Mercedes-Benz. So, as you can see, covering a German company has a high likelihood of covering a company that has something to do with cars.

This time, though, the business model is closer to what we usually look for. Auto1 is the dominant online used-car platform in Europe. It’s a two-sided marketplace – sellers on one side, dealers and buyers on the other – with a lot of physical infrastructure underneath it, so it's not the kind of asset-light middleman that's easy to dislodge.

The market is still highly fragmented, which means there’s a ton of potential for Auto1 to consolidate it over the decade ahead. The reason I'm looking at Auto1 company today is that it has finally hit an inflection point in profitability.

Auto1 spent years investing in the business, especially building asset-heavy infrastructure. This was more capital-intensive than how most competitors operated, but that’s what built the moat and why most competitors don’t exist anymore, while Auto1 is stronger than ever.

Let’s dive in!

— Daniel

Let’s start with the problem that Auto1 solves. Historically, you had two options when you decided to sell your car. One of them is selling your car privately, consumer-to-consumer (C2C), usually through a classifieds site. The biggest one in Germany is Mobile.de; in the U.S., it’s Autotrader or Cars.com.

In theory, you can maximize the price you get for your car by selling it C2C, since there is no middleman and thus no one takes a cut. But in practice, you have to photograph the car, list it, and deal with strangers coming to your home, every one of them trying to talk you down, and if you are not a skilled negotiator, chances are you won't hit that theoretical top number. I certainly know Shawn and I wouldn’t. After our trip to Lisbon last year, that’s the one thing I’m very sure of…

Personally, I can’t think of much worse than spending an afternoon haggling. But haggling would also be part of the second route you can take – going to a dealer. Still, it's more respectable, and you don’t have to let strangers come to your house and take your car for a test drive. The big downside is that a dealer typically makes a margin of 10-15%. So you will certainly get a lower price than in a C2C sale.

What Auto1, Carvana, and a few others introduced was a third way: consumer-to-business, or C2B. Instead of matching you with another individual, Auto1 buys the car from you directly. It quotes a near-instant price off its own data, you do a quick drop-off and inspection, and you get paid almost on the spot.

What makes Auto1 special is that it went against the industry wisdom of staying asset-light and just facilitating transactions. Auto1 takes cars onto its own balance sheet.

To some extent, this is like the first-party-versus-third-party debate you see all over e-commerce. Is it better to just match buyers and sellers the way Amazon did for many years, or to buy the inventory yourself and sell it on, the way Coupang does in South Korea? Ask the two companies, and you'll get two different answers. But having covered half the e-commerce businesses on earth by now, the pattern I keep seeing is that the winners drift toward the asset-heavy, vertically integrated model over time. It isn't more profitable at first, but it builds the deeper moat.

Obviously, the comparison is imperfect in this case, since cars are a structurally different business. Part of why Coupang can operate first-party so profitably is that they pay for inventory only after it's sold. That’s a luxury Auto1 doesn’t have.

And yet, Auto1 has now reached a scale at which it can operate at respectable margins and has created a huge barrier to entry due to the two-sided nature of its marketplace. There’s a lot of lock-in for dealers.

And the market underneath all this is still enormous and fragmented. Europe does around 40 million used-car transactions a year, compared with only about 10 million new-car sales. In numbers, that’s roughly €700 billion annually. Per McKinsey, the top 20 used-car retailers in the US hold about a 20% share; the top 20 in Europe hold less than 10%, and by Auto1's own estimate, it's under 6%.

There are two ways to look at market fragmentation. You could argue that it speaks to the difficulty of operating in this market and its competitive nature. I would argue that it offers an operator like Auto1 the potential to gain significant market share in a sector poised for further consolidation.

The reason I make this argument is that Auto1 is the first business model that actually benefits from the fragmented nature of the market across Europe. According to Auto1, about 60% of the cars it transports are sold in a different country than where they were sourced.

The reason is the materially different customer demands across countries. Take EVs in the Nordics. Electric cars account for about a third of vehicles on Nordic roads and two out of three new sales, versus roughly 7% of the fleet and 23% of new registrations in Germany. So a combustion Volkswagen in Norway struggles to find a buyer and sells cheap, while that same car fetches a much better price in Germany, where demand is still high.

A Norwegian dealer might know this, but he can't act on it. Shipping one car to Germany is uneconomic for him alone. Auto1, though, has built the scale to do exactly that profitably across every major European market. It’s quite rare for a business to benefit from international scale to that extent. If McDonald’s opens a new shop in DC, that does absolutely nothing for me in Hamburg (although my last visit to McDonald’s has been about a decade ago anyway…). Even for a company like Uber, international expansion only goes so far. When I travel, I benefit from it, but the rest of the year, I don’t really care.

But when Auto1 expands into the Nordics, a buyer in Germany directly benefits because there's now a cheaper Volkswagen sourced from Norway in the German market.

Long-term, Auto1’s goal is to grab 10% market share. Right now, it stands at 3%, selling about 840,000 cars a year, up 22% year over year.

One of the reasons I wanted to research Auto1 is “Wir Kaufen Dein Auto,” which, translated, means “We Buy Your Car.” This wasn’t relatable to Shawn, and it won’t be to most of you, but “Wir Kaufen Dein Auto” has one of the most aggressive marketing campaigns in Germany. It’s nearly impossible not to know about this website. There’s an entire meme culture around their advertising.

And for context, “Wir Kaufen Dein Auto” is a sourcing funnel for Auto1. It’s where you, as a private seller, can go to sell your car. And the process is quite fast. You just go to the website, upload photos and the key details, and because Auto1 has tons of realized transaction data on effectively every car in every condition, it hands you an instant price. And since it’s 2026, they obviously proudly state that around 90% of the pricing work is done by their AI.

Then you drop the car at one of roughly 750 pick-up stations, a dealer does a 20-minute check and test drive, and you're paid. And as long as the car matches the photos and description, there’s no haggling involved. The price obviously sits on the lower end of what you could theoretically get selling privately, so the trade-off between price and convenience still exists, but for most people, a little less money for a lot more speed and zero hassle is a much better deal.

And Auto1 has a "Wir Kaufen Dein Auto"-equivalent in every single European market, simply translated into the local language.

The second segment of the business is, well, Auto1. It’s a bit confusing, but Auto1 is not only the name of the overall company, but also the name of the wholesale marketplace. It’s essentially a dealer auction, the demand side, where roughly 90% of sourced cars get sold to dealers somewhere in Europe. It’s the lower-margin part of the business, but it’s a huge part of the moat. When we talked about Nordic ICE cars being sold in Germany, this is the part that makes that possible. It generated the pan-European liquidity and the proprietary pricing data.

It’s also worth noting the order here. Auto1 built this sourcing-and-wholesale layer first, over eight years, before ever launching consumer retail. All the companies trying to do the same some years ago did it the other way around, leading with the high-margin retail business.

The third and last business unit is Autohero, the D2C retail brand. This is the part that comes closest to the Carvana business model. If a car will earn more when sold straight to a consumer, Auto1 routes it here. The cars are reconditioned in-house, photographed, listed, and delivered to the buyer's door with financing and a return policy. It's the smallest of the three by volume (~100,000 cars a year against wholesale's ~750,000) but the highest-margin, and it's growing fast.

One thing I like about Auto1 is that this is still a founder-led business with high insider ownership. Christian Bertermann, the CEO, holds about 12.5% of the company; Hakan Koç, now Chairman, holds about 9%. Bertermann’s salary alone is quite modest (for the CEO of a multi-billion dollar company!) at around €500k.

So his way of making money with Auto1 is just like mine and yours – by the stock going up. Admittedly, he will make a bit more money than you and I would. Not only because of his sizeable stake, but also because he signed a new incentive deal last year. The new deal is a five-year term running through 2030, and the central hurdle is that the share price has to hit €75, measured as a three-month average, at least once by the end of 2030.

The stock is around €25 today and wasn't materially higher when the deal was signed, so for the CEO to sign up for this, he presumably thinks a roughly 4x is realistic. If this goal is reached, he will be rewarded with stock worth about €400 million. This might sound excessive at first glance, but if the stock quadruples, the market cap will exceed €20 billion, and I’m more than happy for the CEO to be compensated as described above.

One detail I especially like is that the new CFO’s bonus is tied to the same structure, though with lower payouts, naturally. That matters because the CFO is central to Auto1's next chapter, the financing business, and you want the person scaling a loan book incentivized on the same long-horizon share-price outcome as the founder, not on how fast the book grows.

When you hear about a financing business, you might be scared about the idea that it could be the same as with Carvana. Carvana makes something like half its gross profit from auto loans, much of it subprime, which is why it's fair to think of Carvana as a lending business with a car dealership attached, rather than the other way around.

But that’s not the case for Auto1, and it structurally can't be, because European subprime auto lending barely exists the way it does in the US. Regulation is tighter, interest rates are capped, and the market skews prime and near-prime. Roughly 15-20% of the US auto-finance market is subprime; in Europe it's more like 2-3%. So the credit-risk profile is very different. Of course, that also means that the ceiling on lending profit is lower.

Auto1 lends to both sides of its own marketplace. On the dealer side, it finances the inventory dealers buy, and on the consumer side, it finances Autohero buyers. The interesting evolution is that it used to just be a sort of lead engine. Auto1 handed the customer off to an outside lender and booked a small referral margin. Now, Auto1 is vertically integrating into the loan itself. It originates the loan, and the customer owes Auto1. That's more profitable, but it ties up cash because Auto1 has to fund the loan today and wait years for it to be repaid.

The way it gets that cash back quicker is securitization. Auto1 bundles thousands of these loans together and sells bonds backed by the repayments to outside investors. And the cash that comes back in goes out again for new loans or to fund more inventory.

So how does Auto1 actually make money, and what metrics should we keep an eye on? One metric you usually look for, but that is close to irrelevant for Auto1, is revenue. If I sell you a €25,000 car, I book €25,000 of revenue and keep maybe a thousand or two of gross profit, because the car itself is 85 to 95% of that price. The only number that means anything is gross profit per unit, GPU.

The key difference for Auto1 lies in its different channels. On the wholesale side, Auto1 did just under 750,000 cars last year at an average price around €8,500, keeping about €1,000 of gross profit each – call it an 11-to-12% gross margin. On the retail side, Autohero moved only about 100,000 cars, but at roughly double the price (~€17,400) and about €2,600 of GPU, a 15% margin. So a retail car earns more than 2.5 times the gross profit of a wholesale one.

At first glance, you might think that, based on these numbers, Auto1 should focus more on the retail side of the business. But that’s not necessarily true. While the per-car margin of the wholesale business is low, the inventory turnover is much faster than on the retail side. And if we assume that Auto1 turns its wholesale inventory every month, they turn the same capital roughly 12 times a year. So even at a 5% EBITDA margin per car, turning the money 12 times gets you a return on tied-up capital of something like 60% before overhead.

The retail car earns far more per unit, but it sits for three to four months while costing money due to reconditioning, delivery, and marketing. So it ties up money much longer. Part of the truth, though, is that, including overhead costs, margins are still very slim overall.

This is even more true when we look at cash flows. While Auto1 has turned profitable on the income statement, it still burned around half a billion euros of operating cash flows last year. I bring this up partly to immediately debunk the idea that this business model is still a structural cash burner.

The reason for the lower cash flows is twofold. First, we have inventory, which went from about €700 million to €1 billion as they deliberately built selection, and that's cash that flows back out of working capital over time. The second reason is the loan book. As we know from looking at other lending businesses, scaling a loan book comes with a lot of upfront costs. As Auto1 scales lending, it pays cash out today that only returns over years.

Both run through working capital and drag operating cash flow down to that ugly negative €450 million figure. Auto1 reports an adjusted version that strips these out under the wonderfully unwieldy name "Net Cash from Operating Activities pre-Captive-Finance and pre-Inventory," which does show the underlying picture is healthier than the headline number suggests. That said, we have to keep an eye on inventories. It’s easy to say build it up voluntarily; it’s another question whether we actually see it go down over time. Auto1 wouldn’t be the first company to go down because of excess inventory in a capital-intensive and cyclical industry.

Whenever you look at a company that seems to be at an inflection point and is still running negative cash flows, the range of outcomes is wide, since everything depends on the direction the company takes over the next one or two years. Will it continue the margin expansion, or will it retreat back to negative margins?

The range of outcomes in my valuation model is showcasing those two realities. The fair value estimates between my base case – business as usual, margins keep inflecting, and the working capital headwinds slowly reverse – couldn’t be further away from my bear case – GPU’s slowly decline and then stagnate, causing EBITDA margins to go from 21% today to 13% by the end of the decade.

If you combine that with a low double-digit multiple, you get a totally obliterated stock price of €3 to €4. Let me be clear, I don’t expect this to happen at all. This is just to illustrate what would happen if the inflection point turns out to be a short-term cyclical tailwind rather than a structural shift. When I modeled this, I felt like it couldn’t be right that the stock would be so low. But take a look at the stock chart. The stock literally traded at that price just two years ago.

Still, I consider the base case to be much more likely, naturally. I expect “modest” GPU growth of 2.5% for the merchant side of the business and about 4% for the retail side. This would drive up EBITDA margins further, and thanks to operating leverage, they would go to 31% by the end of the decade. On a more or less flat EBITDA multiple of 20, this would result in a fair value (including our margin of safety) of ~€34. Resulting in an implied 5-year IRR CAGR of 12%.

The stock has risen over the last few weeks, and the opportunity looked even more attractive when it traded around €19- €20. When buying a company that is right at its tipping point, without further evidence that the business model can work sustainably, I need a larger margin of safety than the stock offers today.

This reminds me of Uber, to some extent. Uber was able to prove that the scale it reached turned the ride-hailing business profitable. I could see the same happening for Auto1. And obviously, the best returns come when you invest in uncertainty, which is why investors in this stock from 2024 killed it.

That said, I focus on minimizing my downside risk, not optimizing my upside. Thus, I’m not yet willing to take this risk. Although I really like what I see! I’ll keep it on my radar!

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