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

**SPEAKER_1** (0:00)
You're listening to TIP.

**Daniel Mahncke** (0:03)
Today, you will get your cold open, Shawn.

**Shawn O'Malley** (0:05)
I hope so.

**Daniel Mahncke** (0:07)
I mean, I can just no longer stand you, 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.

**Shawn O'Malley** (0:15)
I finally got to you, huh? All right, well, tell us about Auto1 then.

**Daniel Mahncke** (0:20)
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 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 Carvana, Shift and Carloads. And in Europe, the big one was Kazoo, 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 2023 happened, and used car prices got crushed, interest rates went up. And as we, I think, 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 euros. Shift merged with Carloads, only for both to go bankrupt. And then Carvana almost went bankrupt and had to restructure $5 billion of that.

**Shawn O'Malley** (1:40)
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 2023 And then over the course of that year, it 10x'd.

**Daniel Mahncke** (1:55)
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 would 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 used car market generally is.

**SPEAKER_1** (2:40)
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, investing 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, Shawn O'Malley and Daniel Mahncke.

**Shawn O'Malley** (3:26)
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.

**Daniel Mahncke** (3:44)
No, no, I don't. But where I live, 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 bus, you're way faster.

**Shawn O'Malley** (3:56)
I do know, though, you're very interested in cars, which is very fitting with your German identity.

**Daniel Mahncke** (4:02)
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 brands 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, Shawn, you definitely opened my eyes that Lexus are luxury cars. I gotta say that. And you're right. They are certainly people with more car experience than the two of us, which I probably prove, 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, because there's this big German YouTuber who's making videos where people basically come to him and then sell him their used 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 times 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-Kruger effect. And I'm currently on the peak of mine, stupid.