Auto1: EU-sed Car Marketplace - [Business Breakdowns, EP.246]

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All opinions expressed by hosts and podcast guests are solely their own opinions. Hosts, podcast guests, their employers, or affiliates, main maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. This is Matt Russell and today we are breaking down Auto1. On the surface, Auto1 will sound very much like a European carvana. But my guest today, Harrison Moot, co-founder and CIO of Sandstone, will get into what exactly differentiates Auto1 from any of the US analogs and even its European competition. So we get into the European used car market, the cross country dynamics, and how that's an opportunity for Auto1 and how they approach financing so that subprime risk that we often associate with carvana, what's different there at Auto1 and much, much more. So please enjoy this breakdown of Auto1. Harrison, I am excited to have you here to talk Auto1 today. I don't think this is going to be a name that our US listener base is too familiar with. But I think it resembles a name that our US investor base is very familiar with. So you can give the formal introduction to what Auto1 is as a business, some brief overview to get us started and we can dive in from there. Hi Matt. Great to be on the show, looking forward to going deep on a very unique and we think under appreciated business of Auto1. So sometimes referred to as the coverer of Europe, Auto1 is Europe's largest vertically integrated online marketplace for the buying and selling of used vehicles. At the simplest level, it connects people who want to sell a car with dealers and consumers who are looking to buy one. But that simplicity significantly undersells how the business actually operates and how differentiated it is from a traditional marketplace like your Auto classified you'd be familiar with. The business model is unique in that it actually buys the cars itself from those consumers who are looking to sell. It takes that car onto its own balance sheet. It then moves the car through its fully owned and operated logistics and refurbishment network. Then sells that car to either dealers, which is unique from the car owner business model or back to consumers. And ultimately it also provides financing to the end buyer as well. The vertical integration of the business is key to understand because it gives Auto1 much tighter control over price, speed and customer experience that a pure marketplace or classifieds model could just never match. To give you a sense of the massive scale of Auto1, last year they traded about 840,000 vehicles through the platform, which is more than 2,300 vehicles a day. They did this across 30 countries in continental Europe and really they're the only company operating this model at any meaningful scale in Europe. The obvious comparison particularly for US listeners is obviously Carvana and this is directionally correct in many ways, but there's two key differences that I'd highlight off the bat. Firstly is just from a market backdrop perspective. Europe as compared to the US is far more fragmented and operationally difficult than the US, which is a much more homogenous and national market. This obviously has challenges to Auto1 but also a number of benefits which are worth diving into. And then the second is Auto1 doesn't derive any material profitability from subprime financing, which as you may or may not know is a significant profit driver for Carvana but also the source of a lot of debate around credit risk and exposure. Probably the last thing that I'd highlight which is very important to how we think about investments at Sandstone is that Auto1 is still run by its co-founder Christian Boderman. He's got very ambitious long-term plans. He's a relatively young guy and he still owns over 10% in the business. So that combination of a founder-led company, dominant position in a very large market and a long growth opportunity ahead of it is an exciting setup for us. I like how you frame that subprime debate in very politically correct terms and we won't have to dive too deep into that which is good to know right off the bat. Your prior point on the European market, it's very interesting to me that you have a player that is operating in 30 markets in Europe. You have the US players, Carvana, CarMax who seem US or North American base very specifically. So that tells me there's something about geography which looks different. Can you get into a bit more about the European use car market? Absolutely. I think to understand why Auto1 works, it helps to level set and frame what the traditional consumer experience is of selling a used car. This is the same across most markets globally and if you've ever sold one, you'd know that also almost universally it's a pretty terrible experience. I think from there we can go into the specifics of Europe and how Auto1 is different. Globally, it's a terrible experience. That's something that's the case in every market I think. There are very consistent feedback during our channel checks and also personal experience. So as a consumer, you had historically two options to sell a car. The first was to sell the car privately, consumer to consumer which was typically done through online classified and that's a painful experience. You've got to list the car. You have to deal and negotiate with strangers, organize inspections and test drives, negotiate with flaky buyers. And as a seller, you don't really have any certainty on either price or timing of selling that vehicle. The second option you had was to trade in the car to a dealer. That's obviously an easier and faster experience but that typically comes with a mean, flea worse price as the dealer knows that you'll trade off that convenience for a lower price. So the trade off a consumer had historically was really between convenience or price but never both. What Auto1, Carvana and a number of other players introduced globally was a third model which is disrupting this consumer experience which is known as consumer to business or C to B. So instead of trying to match the seller of a car with another individual buyer, these players Auto1 buys the car directly from the consumer. That's important because Auto1 as the buyer can give the consumer a near instant price based on the vehicle data. There's a simple drop off an inspection process and then the consumer gets paid almost immediately. So from a consumer experience it's faster, it's more transparent and far more convenient than the two alternatives that we talked about. And then I think you're doing so and we've seen this model play out globally. They are ultimately disrupting both the local dealerships as well as the auto classified by offering a vastly better consumer experience and we've seen the business models gain market share globally as a result. Back to the European market dynamics specifically. As you know, the model has worked in the US through Carvana but our perspective and our work has shown that it's ugly even more compelling in Europe because the underlying market is so much more fragmented and far less efficient. The absolute scale of the European use car market is large but it's not the same as the US in that it's a single unified market moving from one state to another. Europe scaling I use car business. means dealing with different languages, tax regimes, registration, transport groups, as well as very localized dealer demand. And so it's a much more operationally complex problem in much more fragmented market, and Auto1 is ultimately solving this problem. They've built the infrastructure to source vehicles in one market and then sell them in another, and the stat is that more than 60% of Auto1's vehicles that they source are then sold cross-border. It's different country when you say market. Different country, that's right. So in effect, they might be buying a diesel vehicle from the Nordics, where the resale value is relatively limited, because they're looking to buy EVs. They could then be transporting and selling that to a dealer in Spain, Germany, Poland, Italy, any of these markets across Europe. The scale of the market is also huge, so each year in Europe there's roughly 38, 40 million used car transactions, and this actually compares, if you look at new car transactions, to only about 10 million. Obviously, the price differential is pretty material between these vehicles, but the absolute scale of the market is huge. On a value basis, this is worth about 600 billion euros a year in transaction volume. The average car in Europe is a lot more aged than it is in the US. It's about 13 years old. From a consumer perspective, in most countries, the vast majority of consumers will actually only have a buy a used vehicle rather than new one. This is a key fundamental consumer experience for a lot of Europe. Also, worth highlighting is the dealer base is very fragmented, with nothing close to the level of consolidation or institutionalization that you've seen in the US. The studies, the top 20 used car dealers have less than 10% market share in Europe, which compares to about 20% in the US. Auto one today is doing just under a million in terms of transactions per year. Is that what it was last year? That's right. About 850,000. This year or next, they should cross the million car market. Got it. So two to three percent market share, my math might be off. It's about three percent market share today. Still very early days in terms of market penetration. The logistical dynamics of that cross border transactions dealing with all the different regulatory dynamics in terms of registrations pains me to even think about. I want to get into the founder story here. There must be somebody associated with this who was out to solve a problem, not just in their local market in the broader region. Tell me a little bit about the founder story where the business began country wise and how quickly they scaled outside of that. I'd be curious to understand their history around this one. Auto one was founded in Berlin in 2012 by Christian Berteman and Harkin Kosh. I think you're exactly right. That their background is important because they didn't come from the traditional car industry. They came out of the Berlin consumer internet ecosystem. So Christian, who's still the CEO today, had product experience at Citadel, which was a business later acquired by Groupon. And Harkin had operating roles at both home 24 and rocket internet. So I think this background informed their approach. They were trying to solve the problem not as used car dealers had historically, but as internet operators looking at this very large, very fragmented offline market and figuring out how to solve this problem and ultimately systematize it at scale. And so the sequencing of how they built the business over time is important. So when they started in 2012, they built the consumer to business sourcing engine. And this is through a brand and apologies to the German listeners called via Carfen Dine Auto, which means we buy your car. When you look across each of the markets in Europe, they are in the same name in each local language across each of these markets, which is their sourcing brand and their sourcing engine. And so this was back in 2012, how they solved the first leg of the problem, which was how to acquire vehicle supply directly from consumers at scale. A year later in 2013, they launched AutoOne.com. And this can get confusing as we go through it, but AutoOne is also the name that they give to the merchant side of the business, as well as obviously the group's operating name. And so I'll use the two interchangeably. But in 2013, they launched AutoOne, the dealer marketplace and what this did was give them liquidity on the other side. It allowed them to match this unique supply that they were building through we buy your cars with dealer demand across Europe. It also enabled them to build the pricing and transaction data that really sits at the core of their model. This then enabled them to rapidly expand across the rest of the continent and sort of 12 years later, where 30 countries. It was actually only much later, eight years after they started the business in 2020, that they launched AutoHero, which is the consumer retail side of the business. This is the part of the business, which is more analogous to Carvana. That sequencing is important. They first built the supply. They then built the wholesale liquidity and only much later launched the consumer retail portion of the business. And so it enabled them to build the foundational operating, trading and network infrastructure before they then invested in the more capital and operationally intensive part of the business, which was AutoHero. A few other company milestones worth noting that company went public in February 21 at about a 38-year-old share price, a traded above 50-year-olds on the first day. As we're recording this, the stock is closer to 20 euros. And so I think it says a lot about how much enthusiasm has come out of the sector since that sort of bivalicious period of 2021. The other key competitive milestone for the business was in 2024, really, their only competitor called Kazoo, collapsed after they'd raised more than 2 billion euros. I also don't think it's a coincidence that in 2024, AutoHero won reached its first year of EBITDA profitability. And so it's worth calling out that it was 12 years of loss-making operations before they generated that first period of profitability. It proved the economics can work at scale, but it also just showed how difficult and how expensive it is to get to that point. And did Kazoo also do the wholesale model? Did they do a split of wholesale and consumer? That's an interesting difference relative to the US players. It is. That's exactly spot on and worth calling out. What Kazoo did was try to immediately replicate or call it the Carvana model of sourcing refurbishment and sales back to consumers. And unlike AutoOne, they hadn't built that merchant business, which, although it is low-amagine and we'll come back to the detail over time, it really enables them to build the operating data and pricing engine, which has then enabled AutoOne to scale the consumer business over time. And so without that sequencing, as capital markets became more difficult, more subdued in 2022, 2023, it just became too hard for Kazoo to continue to operate. Just the last thing that I would call out on Christian is that he had a new long-term incentive plan that was implemented in 2025. And there's two key metrics there that are worth focusing on as part of it. One is his remuneration for the L-Tip will kick in above a 75 euro share price, which is about a 3.5-ax increase from today's 20 euro price. And then the other condition is achieving 700 million euro of EBITDA, both of these conditions are by 2030, in which case, Christian will do very well and he's sort of 7.5 million options will invest. That's worth close to 400 million euros. This would obviously be a great outcome for shareholders, but I think shows the ambition that Christian has for the business and also the execution that they need to do to get there. You gave a pretty good snapshot of the various counter parties or stakeholders that could be within a transaction. Can we actually walk through a transaction example and maybe even how dollars and cents might move anything around financing, just value proposition, walk through a sample transaction to really bring it to life? I'll walk through the transaction and then let's come back to numbers, just given there's a few different segments there which can make it difficult. So to understand, auto one, there's really three core groups that you need to understand. Firstly is the consumers who are selling the car. Secondly, the dealers who are buying those cars. And thirdly are the consumers who are also buying those cars. So starting with consumers who are selling the cars and the sourcing engine of the business, which we talked about before, via car from dyno or we buy your cars. So as a consumer, you might become aware of auto one through marketing, brand advertising, or by seeing one of the companies roughly 750 drop off branches across Europe. As a consumer, you can go online into the key details of your vehicle, upload photos and then receive an offer and price from auto one. And I think what's important here is the speed auto one prides itself on in under 90 seconds, being able to generate a price, almost all of which is AI generated from that historical pricing engine which they've developed over the last 14 years now. If the seller accepts that offer, they can book an appointment local branch, the cargo thorough final inspection and the transaction is completed on the spot. And because Auto1 is the principal buyer, they can make that process fast, simple, and certain. So it's a great experience for consumers. One sort of one then owns that vehicle. The next step is routing or what they decide to do with it. At that point, the company's pricing and decision engine determines the best channel for the car. Broadly speaking, as we've talked about, there's two possible channels. The first is Auto1.com, which is the wholesale marketplace where cars are sold to dealers across Europe. And the second is the retail channel called AutoHero, where selected vehicles are refurbished and then sold directly back to consumers. Starting with the dealer channel, which is still the core of the business, so about 90% of the vehicles today are still sold to dealers. This is a much faster moving channel inventory turnover is less than a month. So about 28 days, most recently, which keeps the inventory risk low and the working capital efficient. From a dealer's perspective, the value proposition of working with with Auto1 is pretty straightforward. First is the selection. Auto1 offers the largest pan-European inventory pool. This obviously matters a lot in a fragmented market. If you're an Italian dealer who might have a customer base that wants Mercedes, that might be difficult for you to source locally, but will be something that you can do through Auto1. Second is price, because Auto1 sources and distributes inventory across Europe, it can often offer dealers much more attractive prices than what they can get in local channels. It's really arbitrarging these regional, these country price differences. The third is convenience. Dealers can buy the car online effectively. It's an e-commerce experience so they can buy the car online and have that car delivered through Auto1's logistics network. And then the fourth and this is increasingly important is financing. Auto1 has integrated four-plan financing and this removes a major friction point for a lot of independent dealers. It's embedded within the transaction flow for them. So it's a much more seamless experience to transact with Auto1. With those dealer transactions, is it truly one-off sometimes in terms of single Mercedes being sold into an Italian dealer? It's not always multiple cars at the same time. That's right. The average dealer, and obviously this hides a huge distribution within the average if you speak to the company, they'll sometimes say that a dealer will purchase one car a month, some dealerships purchase north of 200 cars a month, but on average, the roughly 33,000 dealers they work with a quarter will buy about five to six cars each. And so it's really out there discretion how much they want to transact and depending on the needs that they have as a dealer. On the retail channel, AutoHero, and so this is the part of the business that looks a lot more like Carvana that some of your US listeners would be more familiar with. So when they make that routing decision, and Auto1 believes a car will earn better margin through retail, it sends that vehicle through one of its large industrialized refurbishment centers. This is important, particularly when we come to competitive dynamics and important step of the model. Historically, this refurbishment process was done in a much more fragmented car by carway by local dealers. They would buy a used car. They would then do some light touch-ups, do some light refurbishment, but it wasn't done in any really industrialized way. What Auto1 has done is they have these large centralized facilities. They can drive better and cheaper procurement at scale. And increasingly, they're using automated inspection tools like a bit of technology, which they call car audit technology or CAT. And this picks up through audio and visual a large portion of the issues, which means that they can more accurately price how much it'll cost to refurb that vehicle. Once the vehicle goes through one of Auto1's refurbishment centers, it's reconditioned, it's photographed, it's listed online and sold directly back to the consumer, also bundled with delivery, financing, and an attractive return policy that a lot of local dealers can't match. And so the consumer value prop on the auto-hero side is also built around four things. So selection, pretty simply, they offer a bordering metric, the most local dealers can offer on price, clearance, transparent pricing. There's no haggling again with your local dealer, 30s convenience. So again, it's an e-commerce style experience. You can browse online, you can arrange delivery, and you can buy with confidence because the brand is sitting behind it. And fourth is financing. So on the consumer side, as they do on the merchant, they provide integrated financing at the point of sale. One very important distinction to understand in Europe, first the US, that this isn't a subprime financing story. In Europe, auto lending is generally much more skewed towards prime and near prime. And that's largely because they have much strict deregulation and usery laws, which make the subprime segment much less attractive and in reality, it really doesn't exist. So stepping back and summarizing that, it's an elegant model. Auto-1 acquires these cars directly from consumers. It uses its data and logistics to route them into the highest channel and then monetizes through either that wholesale transaction or the higher margin retail sale. And on the retail sale, I think for a wholesale, you mentioned it's about a 30-day turnover in terms of inventory in and out. What does that look like on the retail side of things, how much of a difference is there? So on the retail side, and this will flow through to when we talk about the economics of the business, it's about 120 days. That number is artificially inflated at the moment because the retail business for auto-1 is growing very quickly. And so they're investing in that inventory ahead of the growth curve, but it's about four months, first one month for the merchant side. On the financing side of things, is that all kept on the books? Do they use their own capital presumably to be tied up and holding these loans in the balance sheet? Just a little bit more about the mechanics of how that works. Understanding that the quality of the loans is higher than what you would see in the US based on just prime subprime differences. I'll go first on the consumer financing portion and then step back because financing is key to understanding really that whole transaction flow because it plays a role in in every step. On the consumer financing side, historically auto-1 had effectively been a lead engine for other credit providers. So it would provide an embedded finance experience, but it was just making a margin on the lead. A more recent focus for the business has been fully vertically integrating into taking effectively the full economics of that integrated financing on the consumer side. It's increasingly originating the loans and then securitizing them themselves. They recently, as of last year, priced their second consumer ABS loan. This was about a $250 million URO ABS and there was a huge amount of demand for it. It was sort of three and a half times over subscribed. And then for the credit listeners on the call, it was priced at only 87 points over Uro Boa. So it's actually a very attractive piece of credit and a fairly tightly priced piece of credit. I assume they can book again on that sale by bundling those loans together. There's some type of net benefit associated with packaging the rest together. There is, I think it's more on the cost side. It's a cheaper source of funding for them and enables them to retain more of the economics over time. Let's get into some of the economic differences. I think we've alluded to it a little bit just in terms of the margin profile, merchant auto hero. However you want to break that down, walk through the differences and if you can put some numbers around it, that'd be really helpful. I know we've been dancing around these topics a lot. So Auto1 reports the business in two segments down to the gross profit line. This is merchant or Auto1 or retail and auto hero. And that's split is important because the economics as you've probably already gathered are very different. At a high level merchant is the fast turn capital efficient clearing engine or call it of the marketplace. Auto hero is slower turning but high margin retail business. Starting off with merchant because it really still is the core of the business by volume. In 2025, merchant accounted for about 90% of unit sales through the network which was just under 750,000 vehicles. To give your sense of price, these vehicles sold for an average of about 8,600 euros. On each of these vehicles, Auto1 generated about 700 euros of gross profit per unit or GPU in the company's parlance, which is a gross margin of roughly 11,5-12% on each vehicle. That may not sound like a particularly high margin or large GPU at first glance, but the key to understanding the model is the velocity that they can transact that through the system. So as we said previously, merchant inventory turns quickly roughly 30 days on average, so they don't earn a large profit on any one car, but they earn a modest profit on a very large number of cars with that capital recycling roughly 12 times a year through the system. And so if we assume, and this is our estimate, that they make roughly a 5% EBITA margin on each vehicle, and they turn that inventory about 12 times a year, the implied return on capital is about 60% before overheads, which is a attractive business to be in. So worth noting out from an economics perspective on the merchant side, is that they're increasingly attaching that financing to the merchant transactions, the floor plan financing, and this should live both JPU and EBITA profitability over time above the current economics today. On the retail or the auto-hero segment, so in 2025 that was only about 10% of unit sales, growing much faster, but this was about 100,000 vehicles. The average price for these vehicles was 17,400 euros, which is roughly double that of the merchant side, and then the gross profit per unit was about 2,100 euros. So 3X, the merchant JPU, gross margins slightly higher as well on the retail side, roughly 15%. And so the difference between the two is fairly intuitive. In auto-hero, the company's catching more of that retail margin, rather than just the wholesale margin selling through to those dealers. But in order to capture more of that spread, it's obviously a lot more operationally intense. There's the refurbishment, photography, quality control, delivery, customer support, and consumer financing. So there's no free lunch in capturing that margin. I think a major incremental driver from here, particularly on the consumer side as we touched on, was the financing as the consumer financing penetration rises that should support both a higher GPU, but particularly profitability. Management has guided to a GPU target on retail of 3,000 euros per vehicle, which is about a 30% uplift from today's level. So I would just wrap that up and say the simplest way to think about it is really that the merchant is the low margin, but high velocity business and auto-hero is the high margin, but more operationally intensive one. Yeah, it is very interesting. Just in terms of you could look at the margins and say, oh, this looks better than the other, but it's capital intensive when you think about slower velocity. I think that's important and I think you're hammering in home well. When you think about the synergies between the two divisions, why you wouldn't just go one route versus the other route, where do those show up the most? I'm just going to think out loud a little bit. It's going to be the price discovery. It's going to be you can source more. So interior buying power, buying leverage gets better over time. But when you think about how these two segments work together, what stands out the most in terms of them complimenting one another? The way that I would answer this is that it really goes to the competitive advantage of auto-1. And so like a lot of great companies, the mode is not just driven by one thing. It's a combination of a number. The things that I would call out, the network effects, the scale economies, the proprietary data set that they sit on, and then increasingly the access to institutional funding. Both of these are driven by really that question around the benefit of having both dealers and consumers on the demand side of that network. Drilling into the network effects more specifically, auto-1 is fundamentally a two-sided marketplace. This more dealers join the platform, the liquidity improves, and better liquidity means better price discovering faster clearing for each of these vehicles. That in turn allows auto-1 to be more competitively for that consumer supply. And then that better supply improves the inventory breadth for both dealers on the auto-1 side, and then consumers buying through auto-hero. So the flywheel is fairly straightforward in that respect in that more buyers improves pricing, better pricing attracts more sellers and more sellers improves the inventory for overall buyers on the platform. Back to the discussion that we had earlier, we'd say that's especially important in a really fragmented market like Europe, where local supply and demand for used vehicles are often very mismatched. And so auto-1 isn't just aggregating inventory at a country level. It's providing a pan-European clearing mechanism or clearinghouse of sorts of used vehicles. The second mode is scale economies. Auto-1 has built real physical infrastructure across Europe. By the end of 2025, it had more than 725 drop-off locations, 153 pickup locations, 150 plus logistic centres, and they also had a network of 300 plus logistic partners. Specifically, on the retail side, they've built 12 large auto-hero refurbishment centres. And this footprint today is for about 250,000 cars annually, a full utilization. We'll come back to the discussion around AI. It's important because it's not just a digital marketplace. Auto-1 is really built. It's a source-sourcing, transportation, inspection, refurbishment, and delivery network itself. And having done this at scale, they can improve the speed, they can lower unit costs, and just really reduce overall friction across the system. As with scale economies, the larger that network gets, the harder it is for smaller competitors to match the price or service level. There's also an interesting thing worth calling out on the capital markets dimension to the scale advantage, as they get larger, this improves the price and ease with which they can access financing. Again, it just comes down to their ability to provide this at a lower cost and more convenient basis. The third element to understand is data. Auto-1's pricing engine is built on almost 6 million use car transactions since inception. This is a proprietary data set. This built not just on listings data that you might see from a classified, it's actually built on the transaction and ultimate sale price data across the 30 European countries, different channels and vehicle types. And so the practical value of that data is really concrete. It helps Auto-1 price a specific car based not just on make model age mileage, but on the actual realised price and demand in the different markets, the different cross-border sections that they operate in seasonal trends and helps them better understand the residual value risk. Ultimately, the more transactions that Auto-1 processes, the better those decisions should become over time and more advantage it has. That all makes sense. And I think the framing just in terms of maximising sources of demand on the cost side of things. I think what's most important is the gross profit margin per vehicle. Most things are going to get bucketed into that. But just on the overhead costs, because there is operating leverage in this model and you see that over time, what would be bucketed into G&A or anything that would be in the overhead side of things? And how much operating leverage really exists in the business? I'm just curious as you see it come all the way down the income statement and through the various lines of expenses. It's a good question and it's probably the most topical debate about the business today on what that margin potential and operating leverage of the business looks like over time. For most of its history, Auto-1 was lost making. It was only in 2024 that they turned their first year of EBITDA profitability. But most of that period up until that point EBITDA margins sat at about negative 3 to negative 1%. And this was as the company invested heavily in building out the network infrastructure of the business, the brand and then later the retail and refurbishment infrastructure, which all sits in the overheads of the business. In 2024, they did about 1.5% EBITDA margins. And by 2025, this was closer to 2.5%. So the business has clearly crossed that threshold of profitability and incremental operating leverage. I think the real debate for investors now, which for a period of time was a discussion was not whether the company can be profitable, but really what that ultimate margin profile looks like. In the company IPO in 2021, management spoke to a long-term margin target of 5 to 9% EBITDA margin. We see that there's really four main levers for the company to getting the first is marketing efficiency. Auto-1 being less than 3% of the market today is still very under penetrated of where we think they can get to and where the company thinks they can get to over time. So they're spending heavily on marketing, particularly on the retail side, to build brand awareness and drive growth of the network. They come eindicated that that marketing spent peaked in the fourth quarter of last year. So we think there should be increased scope for improving efficiency from here. And there's some really interesting read through and historical data from Carvana where they looked at how those marketing cost curves and marketing efficiency improved over time as the brand becomes more well-known and consumers have this great experience with the company. We buy your car is a pretty good branding. name in terms of understanding what you do for consumers. It's always my favorite when you have a very direct branding mechanism like that. So I took my cap to them, at least on that marketing efficiency. It is the other interesting thing on the marketing side worth calling out is the company effectively operates three different brands. We buy your car, auto one on the merchant side, and then auto hero on the retail side. We think it's likely in the company is indicated that over time they'll consolidate those into a single brand and that that's likely to be auto hero. There is a fair degree of consumer awareness that it's ultimately the same company and there's various touch points for consumers who are either selling or buying their car to find their way to the other side of the network, but that should also drive increased efficiency over time having a single unified brand. The second area of incremental efficiencies is refurbishment and operating efficiency. So they've invested heavily since 2021 to build out these industrialized refurbishment centers and there's currently fairly significant unused capacity in that network on our numbers. They're only driving at about 45-50% utilization. So as volume scale through these centers, we should see meaningful operating leverage through high utilization, better procurement scale and then labor productivity. The third thing for understanding margins from here is also financing. That's something which is very differentiated from a consumer experience for the business, but it's also very high margin for auto one. And as financing attach increases, it should support high GPU and stronger EBITDA margins over time. And then the fourth just on overhead costs is auto one runs a very centralized model with almost all the tech capability and management sitting in Berlin. And so as the overall business and the network continues to scale, they should see operating leverage on those centralized costs. And I think at this point you have gross profit margin net positive on both sides. You've hit the mark where you're covering your overhead costs. So the operating leverage from here is an interesting one to monitor. And then you have the balance sheet dynamics of capital intensity inventory turnover. Do they have a target for inventory turnover? I know you mentioned they're doing a lot of upfront and best thing on the consumer side of things, but just walk through some of the balance sheet dynamics and what's relevant in in that case. Because I think it's very important to this story. The company hasn't guided to a specific turnover days that they're targeting, but that's a number which they're bringing down over time on both the merchant and the retail side as the liquidity of the network improves. The overall balance sheet and capital consideration is as you've called out really important to understanding the business. Because auto one buys those cars onto its balance sheet, it funds that inventory as it moves through the system. If it goes through the auto hero channel as they re-verbishment. And then obviously as we've touched on when they finance that ultimate end sale as well. And so the best way to think about it in the way that the company would articulate it is that it's effectively a large working capital dynamic for the inventory. And so as auto one grows, it needs more capital to fund the vehicles, to fund the inventory moving through the platform. But because these vehicles are short duration assets and they turn relatively quickly, the company funds that with non-recourse debt secured against the car. And so really it's inventory financing, which funds that and so it's a capital efficient way for them to grow the business. This does impact how you should think about and look at the cash flow statement of the company. Because auto one is growing quickly, the reported operating cash flow can look weak or negative, simply because more of that cash is getting tied up in inventory as they grow. That doesn't mean that the economic support, it just means that the company is growing rapidly. They need to finance that working capital. And then we should say is the business mature is that that working capital drag will normalize out and the operating cash flow will come through. That makes a lot of sense. Yeah, I think those two things in terms of operating leverage and that cash conversion and inventory turnover feel very relevant, particularly with that big push on the consumer side of things. I think we covered a lot on the the moat and competitive advantage that auto one has been able to build with the technology over time. When you think about what growth can actually look like from here, just talk a little bit about the market, how auto one grows relative to that market, the different dynamics that will impact the growth outlook in the coming years. This is the one of the most interesting things about the business for us. It's very rare to have what we see as an incredibly dominant business. Still at only 3% market share of a very large market. Management has spoken about a path towards 10% market share and they're pretty open about it and we think it's very fair that there could be meaningful upside to that target over time. And so I think the important point is not whether that terminal number is exactly 10% or 12%, it's that auto one is still very early inings in what's a very large fragmented market with a dominant position. There are some interesting precedents for where these business models can get to over time from a penetration perspective. We buy cars in South Africa, which is a broadly similar consumer to business model already has market share in the high teens in this targeting 25% over the next few years. USS in Japan, which operates more of a wholesale auction market has close to 40% market share. And so none of these models are exactly identical, but we think they're useful reference points for the potential consolidation and penetration that auto one can get to over time. The growth levers for the company are relatively straightforward, I think first and most importantly is expanding the supply. The company has been investing heavily in expanding that branch network across Europe. So by the end of 2025, they had about 750 drop-off branches. That number was growing about 40% year on year. So that gives you a sense of how aggressively management is still leaning into the sourcing opportunity. Second is growing the dealer side of the network. The company is increasing both the number of dealers that are buying on the platform, but also the wallet share of those dealers over time. Dealer growth has actually accelerated over the last 12 months with the number of dealers still growing about 23%, 25% year on year. They're only about 15% penetrated of the 200,000 odd dealers across Europe. So it gives you a sense of the runway still left on the dealer side. Third on auto hero and retail. So as I call that, only about 10% of the vehicles today are routed through the retail channel. That side is growing much faster than the merchant as they invest in scaling it. And we would expect that mix to rise over time. Fourth and probably most importantly for profitability as well as absolute growth is deepening the finance attachment and monetization. As that financing penetration rises on both the merchant and the consumer side, auto one obviously earns more per vehicle and this supports higher GPU and better profit conversion. So I think the key point is that they really have multiple levers to grow. There's more supply. There's more dealers. They can increase that dealer wallet share and they can drive a higher auto hero mix over time. And ultimately at 3% market share, there's a long runway ahead on the competitive set or just competition in the market. It's interesting to hear that their previous biggest competitor exited the market. But one of the dynamics just in terms of dealers, it's interesting because they're customers and now they will also be competitors in some way. Does that change the dynamic at all? Like is that a risk? I have a hard time seeing the leverage that an individual dealer would have over auto one, but I'm just curious about one competition more broadly and two if that changes any of the dynamics. We've had a number of conversations with local European dealers to understand this dynamic and there's probably two key things that I would call out. First is the auto hero business is only at 100,000 vehicles today. So it's less than one percent of overall market share and not really impacting volumes. So it's something that dealers are aware of, but really it's not anywhere near an existential threat to their business. And then I would say the value proposition that the dealers get from being able to access as we talked about before this pan-European inventory, they can deliver it to the dealership. That values far outweighed by the potential risk from auto one eventually taking that share over time. Going back to the competitive set, we would really bucket it into three groups. Firstly are the local dealers, which we just talked about. Second are the auto classifiers and then third are the integrated operators like auto one. Each competes with auto one in a slightly different way, but from our perspective none really matches the full model. Back on the local dealers quickly, local dealers do have some advantages. They have the local trust, they have the physical presence, and they often play a natural role in trade-ins, but they do have structural limitations. They don't have that pan-European liquidity pool, they don't have the consonant-wide pricing data, they don't have the two-sided network or cross-border logistic stack, and so they do compete in some local catchments, but they can't really replicate the auto-on model at scale. On auto-classified, they're a different kind of competitor, they primarily compete for discovery, so they obviously give consumers and dealers a place to list inventory, generate leads, and then transact directly in the consumer to consumer market, but that's also the limitation. These classified asset-like marketplaces, they don't solve the inspection, price, transport, or refurbishment problem, and really that's where auto-on is fundamentally different. Their bet is that discovery alone isn't enough, and that by fully vertically integrating through that transaction process, they can provide a far better experience to both sides of the network. I'd also highlight there's an important strategic asymmetry here, a counter position for the fans of Hamilton Helmer on the call, but a classified operator could in theory try to move into more direct carbying, some of them had tried, but doing so requires a complete change in the business model from high margin, capital-litely generation to auto-on, which is obviously and operationally, difficult, balance sheet intensive, and much lower margin business, and so that's a very hard transition to justify economically, and I'd also call out that classified to typically country by country, and so they also lack auto-on's ability to arbitrage that inventory across borders. Lastly, on the direct integrated competitors after Kuzu exited the marketing 2024, there really aren't any at scale. There's a French listed business, Aramus, it's not a perfect like for like comp because it sits within the Stellantis ecosystem. This does give it some advantages in that it gets preferred supply through that, but it also has the issue that it's not an independent marketplace model, and from a scale and performance perspective, it's a far smaller business and revenue is actually growing backwards in their most recent quarter. So uniquely, our perspective is that there's really no effective competition to auto-on across Europe. Yeah, I think local dealers use car salesmen are a stereotype for a reason. Classified, there's a 50/50 chance of me either getting a great deal or getting beat up and getting my wallet stolen at the pickup spot. It's just a very obvious consumer opportunity and better consumer experience, and I think you outlined why it's better on a lot of different sides of things. Execution is not easy, but at least from the value proposition, it's very clear the pain that this solves. I guess getting into some of the risk, because I would tend to agree that not to overstate it, but even for my side of things, I try to be unbiased about this. Competition does not feel like a huge risk. What would you say stands out as the biggest risks for the business? There's typically four buckets of risks or four key debates that you'll hear amongst investors. The first is a margin potential, which we've already talked about. The second is funding and balance sheet, which we've also touched on. The two other ones are inventory risk and then potential disruption risk from AI. I'll start with inventory risk, which is particularly topical at the moment with the conflict in Iran and the potential impact that that will have on residual values of ice vehicles. The growing market share of EVs and battery vehicles generally. Really what the inventory risk comes down to is Auto-1 owns the car. That means if you use car prices fall faster than the company can turn that inventory, ultimately margins can come under pressure. Has that happened? Have there been cycles where that has played out and you have some glimpse of how much it really threatens the business? They have been periods, particularly during COVID, of significant price volatility. I think the key thing to think about and frame the risk is for most of the company's life, that inventory turns within 30 days. And so the percentage change that we're talking about is within that 30-day period, historically that hasn't been at a level where that has significantly impacted pricing for the company. I think in the P&L we've talked about that risk shows up through a lower gross profit per unit and if price moves are sharp enough, which we haven't seen historically, but there can be potential inventory right down effects as well. There are a few mid-again something we touch on that inventory turns are quick, especially on the merchant side of the business. And the company always has the ability to push more cars into that wholesale channel if it needs to clear stock quickly. Our perspective is as well that Auto-1 should be better positioned than peers to manage through these periods. They have more data. They have a larger distribution network to move this inventory, but also the ability to arbitrage these cross-border price differences. And so if the inventory isn't moving in a particular regional country, they can then move that elsewhere within the network to mitigate from that risk. We'd also call out that from a volume perspective, use car volumes and prices historically have held up much better in an economic downturn. They're not as cyclical or economically sensitive as new car sales. It's also worth calling out the potential impact on EVs. This is a real source of discussion amongst investors. Our view would be that Auto-1's capability is really in pricing and trading these vehicles across Europe. Whether those are ICE or EV, they will still have the best data and network in order to buy and sell these across the continent. They'll potentially be some volatility as the increasing share of EVs goes through the system, but we don't see it significantly impacting the value proposition or economics of the business over time. I think the second point is the debate around AI. This was actually a topic which Christian addressed directly in his 2025 shareholder letter, which I'd encourage listeners to read. We agree with the way that he framed the debate. His first point is physical operations. AI can't find code, Auto-1's physical operating system, the branch network, the logistics or the refurb centers. Auto-1 now owns that infrastructure in a way that a new entrant can't replicate overnight even if they did have the capital. Auto-1 has built this proprietary data set over 14 years now, almost six million transactions. That matters because the pricing of used cars isn't just a generic software problem. You really have to have that realized transaction history, the local market liquidity, the routing decisions and the residual value judgment in order to compete with what they're doing. The third point is liquidity. Obviously, it's a two-sided network. Auto-1 has the largest pool of both buys and sellers. Even if you and I vibe-coded Auto-1 website tomorrow, their classic exchange or marketplace dynamics would obviously provide a competitive advantage against that taking share. Then the fourth is just the balance sheet and funding access. These businesses just require a huge amount of funding to reach a point of profitability and realistically a competitor would need multiple billion euros of equity capital alone to try and get to a point where they could compete with Auto-1. As we saw with Kuzu, even in that case, it doesn't guarantee success. I think that was laid out well there. In terms of how you approach this stock itself with all of this throughout the discussion involved, what are your thoughts in terms of framework for valuation? How would you say the market as a whole uses valuation framework? Just any general commentary you don't have to give a stock price target or anything like that. Just I'm curious how it's typically valued. We approach the valuation and returns question asking what kind of earnings power Auto-1 will have in five to ten years and what sort of multiple do we think the business will trade on then? Really the three variables that we think about growth, margin and multiple in that framework. Starting with growth, we called out that the company's less than 3% penetrated of the European use car market. We think it can grow revenue about 30% this year and probably sustain top line of well-north of 20% for at least the next five years with a credible case that it can grow faster with the sourcing dealer penetration and auto-hero mix driving upside from there. On the margin debate, Auto-1 Exit 2025 at about two and a half percent Ebert D.A. margins. If the business can reach the low end of management's margin framework over the next five years, which was that five to nine percent Ebert D.A. margin target, then obviously earnings are going to compound materially faster than revenue growth. And so on simple maths, if they hit the bottom end of that margin guidance, you're talking about earnings compounding at north of 35% of that period. If you believe they can hit the top end of that range, then you're talking about earnings compounding close to 50% over the next five years. The question then goes to valuation and really what multiples should in that scenario are much larger, more profitable and mature business deserve. We really think there's three ways to frame this debate. So the first is the dealer lens. Under this perspective and this argument auto one is really just a big car dealer with a slick website and on that framing, which you can tell we obviously don't agree with, the market will continue to focus on inventory risk, funding dependence and sick locality of the business model. And under that scenario, it would deserve more conservative multiple. There's a pretty broad set of peers within this space. Penske, Lithiar, Group One, automation, CarMax in the US. I know there's a lot of underlying dispersion in business models, but generally speaking. And these sorts of businesses trades around the low teen is earning smoletable, but only growing revenue mid single digit. The second lens, which is more in line with how we think about the company, is as marketing for structure or a platform. And so under this view, the value isn't just turning inventory, but it's in the two-sided network. It's the pricing engine, the logistics, density, the data advantage, and then also the funding capability that they've built up over time. And so with those platform characteristics, we think auto one should be worth materially more than a traditional value, a traditional dealer, even if it never deserves a sort of a pure software on internet platform multiple. There's some interesting comps and it'll probably be a fair bit of debate from calling us out, but businesses like Coupart, USS in Japan or Richie Brothers, as potentially useful reference points for framing that valuation. And so a multiple we could see under that scenario probably has a two-hand on it for a mid-teens level of growth. Our view is that auto one should be worth more than a dealer. It has the network effects, it has that data advantage, but probably worse less than a pure internet platform, just given the capital dynamics that we've talked about. Today, the business trades at a little over 20 times, EBITDA less Coup X, earnings growth in that 35 to 50% range over the next five years. Depending on your view of multiple, you can then back out sort of the return expectations that you can have. Yeah, those numbers in the US, I mean, that would be a big mismatch if it played out and nice for shareholders. And it'll be interesting to see a very specific moment in time, but the capital intensity relative to the internet, the SaaS players, we're seeing a shift in that debate. So maybe in five years time, the multiples will reflect that as well. We'll see. We'll see what happens. This has been fascinating. I really appreciate that framework and that breakdown. And you've explained all of this, especially relative to what US listener like myself would be familiar with. We close these out with just lessons. What would you point to just in terms of the lessons that you can take away from Auto1 and maybe apply elsewhere as an investor? Auto1 had a number of really interesting lessons that we took from it to that I would call out. First is that the winning marketplace model often isn't the asset light version. And so I think we've seen this happen a number of times across multiple industries over the years. An interesting analog might be that eBay was the asset light classified business with great margins. And that was ultimately superseded by Amazon. Again, obviously a much more operationally complex low margin asset intensive business, but ultimately a much larger one. I think we also saw in food delivery, the value shifted away from platforms that just provided the listings layer or the classified like experience and move towards the door dashes of the world, which fully vertically integrated into the delivery experience themselves. They dealt with drivers and ultimately became much better businesses in the process. I think it really goes back and a way to invert it to say for these asset light businesses, they're always at a degree of risk from a competitor coming in and willing to do the difficult operational low margin or capital intensive thing. And it goes to the Amazon call out of your margin is my opportunity. And I think we're seeing that play out here with AutoOne. The second lesson for us is capital cycles and funding cycles and how they impact industry returns. I think we've seen particularly over the last decade that long periods of abundant capital, particularly from VC investors are great for consumers but typically bad for investors. They can fund an incredible amount of competition but ultimately they delay or hide industry rationalisation and hide the underlying economics of the eventual winner. That was true across a whole range of internet and logistics heavy categories through 2021. There was the food delivery wars, e-commerce, there was huge amount of investment. But what we've found is that when that capital cycle turns, the picture changes, the weaker competitors fall away and the businesses that use that easy money period to build the real infrastructure, the network density in the scale can emerge much stronger. And that's often the opportunity and when things become interesting for investors. The final takeaway I think is that businesses that look too operationally messy or capital intensive during the build phase can become attractive once that market structure settles and the scale event just start to show through. It's been fascinating discussion again. I was very interested in understanding this business, particularly the nuances. Those were some great lessons to cap it off. Thank you very much Harrison for sharing the knowledge here. Thanks for having me that. 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