Hello, good afternoon, and good morning to our American participants. Welcome to the AUTO1 Group Q2 2023 results presentation. I'm Philip Reicherstorfer, Group Treasurer. As always, I'm joined by Christian Bertermann, our Co-Founder and CEO, and Markus Boser, our CFO. We will start with the presentation, followed by questions and answers. If you would like to ask a question, please raise it by the usual Zoom Q&A tool at the bottom of your screen. We will then call on you, on you to ask your question directly after the presentation part is over. Before I hand over, I must make you aware of the Safe Harbor provisions at the beginning of the presentation here. This will apply to any forward-looking statements made by management today. Now over to you, Christian.
Thank you, Philipp. Hi, everyone, welcome to the AUTO1 Group Q2 earnings call. In Q2, we took a major step forward towards reaching EBITDA breakeven. Our team successfully executed initiatives that are leading the way to profitable and strong growth, while we continue to move the European used car market onto our platform. We strongly improved our cost base and trading efficiency at the same time. As a result, we delivered record gross profit per unit for the full business. We achieved all that against the backdrop of challenging macroeconomic conditions in Europe and a used car market that was characterized by tight volumes and continued price pressure. We have mostly completed our work on the cost side, allowing us to switch gears now and start investing into growth again.
We run a unique platform, and we are convinced that we have the power to transform one of the largest markets in the world to the better. Since the inception of the company, it has always been our goal to offer the best possible experiences for all of our customers, dealers and consumers alike. This conviction is determining everything that we do and is paramount for our product development strategy. We have built products that are category leaders in their areas, and others, like Autohero, that are on their way to market leadership. We will add more products to the AUTO1 ecosystem in the future that have the potential to multiply our current market share, driven by the strong value they will provide to our customer base. Taking a look at the market, we find ourselves in an ongoing tense environment.
The AUTO1 Group Price Index shows prices in July of this year being 13.6% lower than in July of last year. Wholesale prices quickly and steeply dropped in the last Q4 before stabilizing again in the first half of this year. The drastic year-over-year market price change is still being digested by many merchants across markets. At the moment, we see a mixed picture. While some markets are already closer to normalized price levels, others are still remaining on quite high levels, like France, for instance. Many merchants have full inventories and are experiencing slow turns. They are step by step, starting to discount their cars to match current consumer demand at lower price levels. This effect led to muted merchant demand levels over the last couple of months.
We have the right tools and measures in place to manage these market conditions adequately, and we continue to support our partner dealers and customers to navigate this dynamic environment. Let's take a look at group financials for the last quarter. We continued our focus on the cost base and on trading efficiency to significantly improve profitability year-over-year. We delivered on that goal from every angle. Group adjusted EBITDA was negative EUR 14.8 million, a further improvement of EUR 10.3 million, quarter-over-quarter, and a very strong EUR 32 million step up year-over-year. Total gross profit for the group was EUR 128 million, up around EUR 2 million year-over-year, and the highest Q2 gross profit level so far.
Group units sold were 142,000, mainly driven by a lower merchant basket than one year ago. Overall, we are on a very good track to manage the dynamic market environment and our path to breakeven at the same time. After thoroughly structured and efficient work on the cost side over the last 12 months, we are convinced that we now have the right structure in place to start investing into growth again, and everyone in AUTO1 is extremely excited about this. Let's switch to our different segments. Let's start with merchant. In Q2, we sold 127,000 units to our partners, generating gross profit of EUR 103 million for the quarter. This expresses the more muted merchant demand environment over the course of Q2 and is evidence of dealers across Europe in full inventories and experiencing slower turn.
While merchants adjust their inventory for falling prices, we continued to optimize our trading systems further during Q2. As a result, we reached a new record level for merchant GPU at EUR 810, 11% up year-over-year. With this GPU level, our merchant business now carries excellent unit economics and very good inventory turns, putting us in the position to start investing for profitable growth. Over the next couple of quarters, we will smartly invest into our dealer base with the goal to increase merchant basket and repeat purchasing behavior, and at the same time, invest into the density of our purchasing network. We plan to expand our purchasing branch network across Europe to be even closer to our customers and make our product even more convenient.
We started to add nodes to our network and locations, which are highly frequented by potential customers, such as parking lots or supermarkets. We believe that there is capacity to expand the branch network by more than 1,000 additional locations across Europe, and we're very excited about growing our footprint. Now let's take a look at retail. Our team's strong focus on Autohero unit economics is continuing to pay off. We are happy that this hard work and focus resulted in exceeding our year-end retail GPU target of EUR 1,500 already in Q2. We achieved a record retail GPU of EUR 1,680, representing a 62% increase compared to Q2 of last year.
Despite having improved retail GPU to strong levels already, we aim to grow it even further for the rest of the year and beyond, step-by-step, moving closer to our long-term target. Retail gross profit for Autohero increased by 52% to EUR 24.7 million year-over-year, up from EUR 16.3 million in Q2 of last year. Units came in at 14,400 vehicles sold in Q2. We would have liked to sell more units, but we're constrained in some of our production centers by hiring personnel fast enough. Nevertheless, we believe that prioritizing our in-house production strategy is the right thing to do to ensure our high level of customer satisfaction paired with solid financial results. Let's deep dive into our production center status. In June, 68% of all units sold were produced internally in one of our in-house production centers.
While the internal production share increased by 240% compared to Q2 of last year, the quarter-over-quarter comparison shows slower growth than we had anticipated in the beginning of the year, mainly due to delays in hiring. Hiring for production centers is one of our top priorities right now. Taking a look at production itself, we were able to reduce costs in our flagship production center in Berlin, Brandenburg, for the 4th quarter in a row. We are now at EUR 690 production cost per unit. That is EUR 330 lower compared to the cost we reported for that center in Q2 of last year.
The combined cost of all of our internal production centers is also decreasing, showing that we are on the right track of reproducing our learnings and best practices from our flagship facility to sites across Europe. External production costs slightly increased from Q1 to Q2 by EUR 40 per unit, reinforcing our strategy to in-house production to fully control cost and quality. Overall, I'm very satisfied with the optimized Autohero unit economics. It shows that we can continue to revolutionize how cars are being sold in the future by building a profitable, high market share growth product that continues to delight our customers. Our customer satisfaction is at very strong and sustainable levels. Over the course of the last quarter, we again achieved high Net Promoter Score levels of 72, in line with the result of one year ago.
Our Trustpilot score of 4.6 and first-time published Google score of 4.3 across all markets demonstrate our internal assessment of customer happiness levels also externally. We are creating exceptional experiences for our customers, and we are convinced that this high customer satisfaction is the key to success. Taking a look at Autohero marketing efficiency, we continue to be on track. Overall, marketing cost per unit was flat in Q2 at EUR 700 per car delivered, which is in line with our plan to reach EUR 500 per car sold towards the end of the year. Let's do a summary of Q2 and take a look at what's coming up. We zoom out. We started to lay the foundation for long-term profitable growth exactly one year ago in June 2022. Since then, we have made impressive progress towards adjusted EBITDA breakeven.
We have improved our OpEx base by EUR 30 million year-over-year. We have delivered a new record for GPU and retail and in merchant, therefore, GPU for the total group. Combined, we can say that we have understood each of our businesses better than ever and have now reached a comfortable point from which additional top-line growth will lead the way to breakeven. One, in our view, very likely calculation on how to reach that point is shown on the slide, with about 3K additional retail units delivered at EUR 100 additional GPU and a 7.5% GP expansion in merchant, assumed to be mainly driven by units, we are reaching our goal.
Each of those input factors could, of course, look differently in the final result, but gives you a sense of how close we are and how much operating leverage the business has from the point that we have reached today. We're confident and excited to start growing our top line again, to first reach breakeven and then continue to grow strongly at profitable levels. We also want to take this opportunity and reiterate our long-term growth strategy. In the year ahead, we will very much focus on adding units to our platform. We will, on the one hand, grow using our existing products. We plan to grow our merchant segment by increased investment into our dealer network and the density of our purchasing network.
On the other hand, we believe that launching new products on our platform for our core customer base, our partner dealers, will contribute to overall revenue growth in our largest business segment by making them even more successful. Seeing our continued path to segment profitability in retail and the very positive trajectory on unit economics, 24 will be the year where we plan to return to substantial growth in units in our newest segment. Our increasingly powerful trading system will continue to generate strong network effects. With the value we generate for our customers and our constant commitment to innovation, we are convinced that we will grow our market share in the years to come, and everyone at AUTO1 Group is excited about what lies ahead of us. I'm now handing over to Markus, who will give you a more detailed financial overview.
Thanks, Christian. Overall, our move towards profitability remains on target, despite a difficult trading environment, with our adjusted EBITDA improving to minus EUR 14.8 million. As we've become better at both pricing our products to their true value, but also continue to improve our cost controls, notably by reducing our OpEx by almost 18% year-on-year and almost 10% quarter-on-quarter, while continuing to invest selectively. While units are down, in line with many other market players, as Christian, as Christian notes, we've been able to improve our profitability per unit significantly. As a result, we saw a marked improvement in our profitability while keeping gross profit at levels similar to Q1, despite declines in our seasonally weak Q2.
If we compare our improved EBITDA quarter-on-quarter, we were able to compensate the lower gross profit of EUR 4.2 million through a combination of improved employee costs of EUR 3 million, as well as a better position in other OpEx and other income, which primarily just consists of a reversion of the increase in those positions in Q1. While marketing increased by EUR 2.1 million, this increase was exclusively in our WKDA purchase channel. We have continued to maintain a high level of cash, ending the quarter with EUR 554 million, a result of continued improvement in our cash conversion and our efficient balance sheet, supported by our non-recourse asset-backed securitization. Inventory remains stable at EUR 429 million.
Our consumer loan portfolio, which are the loans on our balance sheet for making consumer loans in Germany and Austria, increased 8% quarter-on-quarter. Note that these loans are refinanced through our consumer loan securitization. Lastly, we've been much more efficient with our CapEx spend than expected. We've only spent around EUR 6 million on CapEx in the first half of the year. Notwithstanding our investments to densify our purchase network in the second half of the year, we are reducing our CapEx guidance from EUR 50 million to surface EUR 16 million for this year. In terms of our guidance, we are taking our profitability guidance up and our unit guidance slightly down. These revisions reflect our ongoing focus on profitability, as you've seen in our results.
On our merchant units, we are amending our year-end guidance to reflect the first half performance and so believe that we will end the year with 560,000 units, ±5%. At the moment, we are run rating towards the low end of that guidance and believe we can grow towards the top, but much depends on how the end of year evolves, particularly December seasonality. In retail, we are expecting to sell 65,000 units in 2023, ±5%, reflecting the current speed of the build-out of our production capacity and therefore, and therefore our focus on overall Autohero profitability.
On our financial guidance, we are maintaining our existing guidance of EUR 500 million-EUR 550 million of gross profit for 2023, but believe that we will end the year in the mid to upper half of this range. On adjusted EBITDA, we are increasing our profitability guidance from -EUR 60 million to -EUR 90 million to -EUR 50 million to -EUR 70 million, reflecting our improving profitability and positive expectations. Overall, we continue in improving our unit economics, having established the conditions to invest effectively to pivot back to growth. With that, I'd like to open up to Q&A.
Hi, everyone. I am Raphael, your Zoom operator. Before we get started, we would like to review a few technical items to make sure that you can interact with us today. At the bottom of your Zoom window, you will find three buttons: Audio Settings, Q&A, and Chat. Audio Settings. Clicking audio settings will bring up the audio preferences for this webinar. Please make sure that the most appropriate audio device is selected here. As a viewer in this session, your microphone will remain muted, as will your video. Q&A. Please, pre-submit your questions via the Q&A icon. Click the Q&A icon and a window will appear, where you may submit your questions at any time. Once received, Philip will moderate the questions and ask the authors to address management live.
To that end, I will open the line for you, following to which you will need to unmute yourself before you will be able to speak. We will address as many questions as possible live during today's session, but may respond to some questions offline after the event.
Thank you, Raphael, and we will start with Catherine O'Neill from Citi. Catherine.
Catherine, your line is now open.
Great. Thanks very much. I, I have a few questions, actually. To start with, I wondered if you could give us a bit more detail on how you think about getting back to group unit growth, and what makes you confident you can get back to growth without giving up some margin. And I guess more specifically, what type of products you're looking to add, and, and the timeframe of getting to the 17,000 units per quarter, Autohero. That's the sort of first set of questions. Secondly, you were talking about those sort of hiring challenges around production. I just wondered how you're addressing those, and whether you expect that to continue to be a constraint into 3 Q for Autohero units.
On GPU, merchant GPU in particular, where you're now at above 800 EUR, do you see this as a sustainable level and one we should assume can be ongoing? Then finally, actually, on your target of free cash flow breakeven in 2024, I just wondered if you could provide a bit more detail around the assumptions on things like minimum unit volume, GPU expansion, how much of your inventory you expect to be financed by ABS and CapEx for us to think about the bridge together.
Thank you, Catherine. These were a couple of questions. The first one.
Sorry.
No, all good. The first one was, how do we plan to get back to unit growth? Maybe I would take the merchant unit growth perspective first. We think that, as I referred to in, in the presentation, we're seeing at the moment an environment with more muted demand versus 2022. If you compare the basket with 2019, you could also say that we are heading towards a more normalized merchant demand environment. Out of the perspective from 2022, it's more muted because, we're seeing a lower basket year-over-year, versus 2019, it's actually more in line, which I would call the last, you know, normal year.
Number one is we are adjusting ourselves to that new reality, and we will increase our investment into the dealer network. That means namely investment, for instance, in our number of sales representatives and also in features and tools on the platform to increase merchant demand on a relative base. I think that's part one of the answer. Part two of the answer is units are in Remarketing are down so much year-over-year, not only because of more muted demand versus 2022 levels, but especially as certain units were managed out because of profitability requirements. In Remarketing, we've made substantial progress towards profitability.
If you take this part of the business, which is reported as one segment, together with the C2B business under merchant, but if you look at it separately, which we're not disclosing, then we have made substantial progress and profitability there. We think that, for instance, an extension in Remarketing, adding a product, extension in Remarketing that does not require, for instance, us transporting every car, as putting every car shortly on balance sheet for Remarketing. Actually like a more, let's say, asset-light model, that this can actually lead back the way to the units that we used to see in Remarketing in 2022. While actually growing profitable, and not at the negative profitability that we've seen last year.
Timeframe for Autohero to move to, I think you said 17,500 units. I don't know the.
Oh, I think from your presentation, I think there is...
Yeah.
Aim to get back to 17,000.
Yeah, exactly. Yeah, yeah, yeah. Obviously, we want to do it as fast as possible, but I think the official CFO answer, Markus, would be?
I mean, I think, I think if you, you know, take a look at our overall, unit guidance, and, you know, subtract what we've done so far, we should be able to get there, by the end of the year.
Okay. Then, talking about hiring challenges, in production, yes, they are still a constraint to a certain extent right now. I mean, we're working with a lot of focus and I think with very innovative ideas, especially our European footprint as a company helps us. I mean, we have offices in almost every country and also have potential to hire there. There will also be the potential to, yeah, bring mechanics from other regions, for instance, from Spain or from Eastern Europe, into the centers that are missing those. I would expect it to be a short-term constraint, but I can see that we're making progress here. With respect to merchant GPU, is this a sustainable level?
Maybe we've overdone it a little bit if you look at the fact that we reduced total gross profit in merchant. I would say maybe we can be there, you know, EUR 20, EUR 30 lower, maybe EUR 40 lower, but then have substantially more units. That's actually also, yeah, one of the optimizations that we're constantly at the moment going through with the goal to bring in the absolute highest possible EUR amount in total gross profit. I would think, probably it makes sense to, yeah, reduce it a little bit in favor of more units, but I would say also only slightly. We also like that level because it's bringing a lot of, yeah, a lot of additional margin. The cash flow question, I would refer to Markus.
Sure. In terms of our plan to hitting cash flow breakeven, you know, I think as we talked about, a lot of it is really a, a combination of, on the one hand, GPU and on the other hand, units to, to build out. If we think about getting from our EUR 14.8 million adjusted EBITDA, you know, kind of bridging that down to, to, you know, to profitability and then to cash flow. You know, we see that on a quarterly basis, we have probably around another EUR 10 million or so of additional lease expenses.
As you, as I mentioned, we spent EUR 6 million in the first half of the year in CapEx, and see that, you know, going up a little bit in the second half of the year, more from the, the catch up of refurbishment. Already when we first talked about our CapEx expectation, we had already... The, the, the branch increase was something that we were already thinking about at the very beginning of the year, but I think now have made it much more concrete, and I think know much more about the actual expenditure that we have.
The cash flow usage from the consumer financing facility, we expect to disappear over the course of next year as we change the refinancing from, you know, today, a private financing, get a rating, and are able to securitize that in the, in the public market. Then, you know, are still at the moment getting around 80%, less loans value on the, inventory. I think from that you can get, I think, some idea of, of where we are, you know, kind of from adjusted EBITDA to net income slash, you know, other, other cash flow items. In terms of really bridging on, on the net income side of things, because I think you're talking now about sort of the CapEx, and the working capital around consumer loans and, and inventory.
I think kind of step one is really to bring Autohero to breakeven. We haven't provided specific guidance around that, but it's again, it's a combination of getting to the units, I would say, you know, kind of north of where we were in Q1, to really make sure that we have the right, you know, kind of utilization of our people and facilities. Then it kind of, we could become profitable there even at, you know, relative, you know, just a slight increase in the GPU on Autohero. You know, where we're looking at towards the end of the year, perhaps a little bit north of that. If we, you know, even at lower units, would then of course, need to increase the Autohero GPU.
I think it's really finding a balance between the two. Obviously, at the moment, we're trying to do both. Both increase the Autohero GPU and I think see a good roadmap, you know, clearly to the 1,800, but as we talked about, also north of that, to our longer term goal of the 3,000. I think the second point, as Christian talked about, is then really optimizing on the absolute gross profit in the merchant business. I think as we talked about, I think in remarketing, I think you've done a very good job now of really making sure that we're at the right level of per unit profitability. I think from there, we see a lot of opportunity to invest and grow that business, and likewise on the C2B side.
Similarly see, I think, some, some opportunities to, to grow that business. I think, don't need that much growth, on the absolute gross profit, to then be again, you know, kind of depends between the two, between the balance of Autohero and the merchant business, but for the entire business to become cash flow positive.
Great. That's really helpful. Thank you.
Thanks, Catherine. Now Lisa Yang from Goldman Sachs.
Hi, Lisa, your line is now open.
Hi, thanks for taking my question. I hope you, you can, you can hear me. The, the first question is a, is a follow-up, to, to one of the previous question.
It looks like a lot of the profitability improvement came at the expense of units, especially at the Autohero level. I just wondering if you could maybe help us, maybe lay out your, you know, why, what makes you confident that when Autohero units grow again, you know, this is not going to impact your profitability or your GPU could, could even go backwards? I, I think related to that question, like, you know, do you still see, you know, that customer appetite for buying cars online? I guess at the end of the day, that's the key question. My understanding is that, you know, it still needs a lot of marketing spend to educate customers, but maybe I'm wrong. That's the first one.
The, the second question is on Autohero GPU, obviously, you're already well above, you know, target expectations, EUR 1,800 in sort of at the end of 2023. How, how do you see the GPU progression going forward in 2024, 2025? Should we expect like, you know, EUR 100 million-EUR 200 million, EUR 200-EUR 200 per, per year, or, or, or maybe 2024 could be flat if you're investing? Just maybe help us understand the, the, the trajectory for, for GPU progression from 2024. The third question is on your refurbishment capability within Autohero. Could you maybe elaborate how much is in-house versus external refurbs today, and how many cars you can now refurbish in-house?
What you can get to by the end of the year and next year? Thank you.
Thank you, Lisa. So if we talk about Autohero first and also demand for Autohero and your questions, if, like, it's high marketing needed, and when actually does the unit growth kick in? We see Q2 units mainly as a result of sourcing lower units because of production center constraints. Yeah, so April is for production center, quite a horrible month with all those holidays going on, and also May still carries a lot of holidays. If you have on top, not yet fully staffed, your centers, then you, you cannot buy that many units in order to refurbish them at, at the same production cost per unit, which clearly is something that we want to do and have also done.
We first and foremost would say, look, this is where we would see a constraint for Q2. We're actively solving it, per also the answer that we've given to Catherine. We don't see any demand weakness on the Autohero end consumer side. We've improved our systems by a lot, and we see a lot of demand for buying cars online, and that is specifically driven by the great experience that we are providing there. The feedback that we're getting also, what was shared on the slide, at the very high NPS levels that we are, makes us very confident that this is a category that will see very high growth rates in the future.
If we talk about marketing, I mean, we can say that we have reduced marketing cost per unit drastically and are targeting a EUR investment level per unit of round about EUR 500, where we per our business plan, can run Autohero on a GP4 level, so before central. Headquarter cost, which is our goal, profitable. That EUR 500 per unit is still quite an investment versus what other dealers are doing. It's specifically building up a venue that is, in my point of view, very valuable for the future, because there's not that many venues in the online space that are actually collecting so much demand for car purchases, right?
I think it's just from that angle, also a highly valuable asset, and therefore, I think, it's actually high marketing needed versus out of the perspective of a standard offline car dealer. For us, in our calculation, it works, and it's great that we can spend that level, even in a profitable case, to further build up the brand and strengthen that venue that I've been speaking about. Autohero GPU progress that we see upside also for 2024. Markus, is there already some specifics that we would get?
We're, we're not giving any specific guidance for 2024. As you've seen, we obviously have, I think, that kind of clear goal towards getting to the 3,000. A large portion of getting to the 3,000 would depend on us having the securitizations from our own, you know, from our own consumer finance, and doing that not just in Germany, Austria, but also across all of our markets. It's a, you know, that, that probably represents around 700 or 800 or so of that, you know, road to, to 3,000.
I think, somewhere between what we've stated as our, as our, as our goal to getting to that 1,800 by year-end, and somewhere below, you know, not having the impact of, of the securitization across all of Europe is, is likely where we will be during the course of 2024. I think not giving any guidance on that.
Your last question was on production center capacity and internal refurbishment capacity. Per, per this slide, at the moment, refurbishing around about 60, I have it here, so about 68% of our cars internally, and we see continued upside in that number. We are still aiming as fast as possible to ramp up that share to 90%. We believe that we can also get there until year-end, but at the moment, yes, it's a, it's a little bit lower than we had anticipated it. If you would think, okay, what's, what's our current refurbishment capacity?
If you look at the cars that are sold, and internally re-refurbished, then I think it will still require one more step to actually go to the 17,500 at the high internalization share that we want to reach. Yeah, it's, it's pretty much kind of two constraints that we're managing in parallel, because we do not want to dilute our Autohero profitability, via going to external refurbishment.
That's very helpful. Thank you.
Thanks, Lisa. Now over to Adam Berlin from UBS.
Adam, your line is now open.
Hi, Adam. I think we can't hear you.
I think Adam wanted to know about the strategy to deliver Autohero volume growth in 2024 and beyond, and where we get the cars from.
If that's the question, then the answer is we continue to see that the majority of those cars will come from our own sourcing. So that means our C2B channels and also our Remarketing channels. We continue to see good conversion rate improvement as we are as we are, yeah, driving up also more and more algorithm, let's say, efficiency, driven by more and more retail transactions with respect to the price level that we can actually quote in Autohero. In other words, our data algorithms are learning and learning and learning every minute and hour that we do this business. Therefore, we remain on the primary source of at the moment, source of Autohero cars will pretty much stay the same in 2024.
Then the main point for us is actually similar to the full business, that we now are strongly convinced that the GP4 target that we have for Autohero, so to be profitable before headquarter, will be reached via additional units at those higher GPUs that we have been talking about. So it's pretty much a similar task across the full business to now invest into the areas that are generating more unit sales while improving Autohero GPU only slightly versus current levels. I think that will then give us decent growth potential, because then we will feel really confident about adding those units to Autohero, if we see those, if we see those profitability improvements.
Sorry, Christian, can you hear me now? Is that-
Yes.
Sorry. Just, just, if I can have a follow-up. I think for this equity story to really work, we, we need to see, you know, material growth in Autohero units. All the things you just talked about just seem very marginal and incremental. I mean, you know, you know, can you, can you just say a bit more about, you know, try and size for us, you know, where are these cars gonna come from that it's gonna mean, you know, we're, we're selling now... Originally, we're supposed to sell hundreds and thousands of these Autohero units a year to get there, and we're struggling to sell 60,000. I'm just trying to understand how we're gonna deliver this, this big step up in units over the next-
Yeah
... four, five years.
I think it's really about, you know, hitting that profitability milestone, because as long as you're not profitable and you're scaling units, you can see how that went also for the competition, right? If we look at our monthly data, we are step by step, with every month, improving profitability in Autohero on a per unit basis and also on a full euro calculation. What we're at the moment doing is really, yeah, increasing the units when we can. It's also, like, on a per country level, where we're looking at this equation. As soon as we hit GP4 profitability, there's a lot of units that we're seeing in our funnel offered to us that we could process. Obviously, you also need to be able to process them.
At the moment, we have, one, a constraint in hiring, as we referenced towards, and B, a constraint in total profitability. If we now added 40,000 units, let's say, to Autohero in one quarter, then it would not look very nice for overall group profitability. That's kind of the two or three constraints that we manage in parallel, while we are advancing in that segment as well. Overall, I would not say that the equity story of AUTO1 is just Autohero, right? I think the equity story of AUTO1 is really launching products on our platform, that is the central piece in the European used car market, and maybe in some years also go global. We are seeing Autohero as one product. We're seeing C2B as another product.
We're seeing Remarketing as another product. We believe that there is 1, 2, 3, maybe 4 more products that we will add, and we will disclose once they're ready. For us, it's really about connecting the European used car market and making sure that we are transforming this market into the place that it deserves to be. For us, Autohero is a vital, but also only one of the puzzle pieces that it takes.
Thank you.
Thanks, Adam. Thanks, Christian. Now over to Andrew Ross from Barclays.
Andrew, your line is now open.
Hi, Andrew, can you unmute? Because we think we can't seem to hear you.
Sorry, can you hear me now?
Yes.
Sorry about that. I've got two more, if that's okay. First one is to ask about the retail market, in terms of pricing in Germany. It kind of feels like there was a correction in the wholesale market late last year, and if you look at the AutoScout Index, for example, the retail market now seems to be softening. Can you talk through what you're seeing in terms of retail pricing and how you've budgeted for any softening in the GPU for Autohero over the next couple of quarters? Second question is on the marketing in merchant. It looks as though it went up quarter-on-quarter in Q2, but you sold fewer cars. Can you tell us about what's going on in terms of marketing cost per car in merchant? Any change in trends in that space?
Thank you.
Absolutely. On retail market pricing, yeah, it's completely correct what you're referencing. If you take, for instance, German data and AutoScout24 data and other market players and other, other European players, we'll see similar. You can see, like, a very, yeah, in, in our point of view, beautiful thing is, like, as we're tracking wholesale prices, you can see how actually price development is then making their way into retail. When I was referring in the presentation to merchants chewing through their inventory, that they, to a certain extent, have purchased at high prices, and that is exactly what is happening. We're seeing it as one of the earliest or the earliest market participants. The price levels change.
We've already seen it in Q4, and now we've seen, like, a little bit further downward trend, and that is now what is happening in the retail market. We're seeing that the retail market is now moving step by step, lower, especially in Germany, but it also depends on the market. For instance, France is not yet correcting so much. I think also there, the geopolitical situation, also, like, strong holiday season right now, is actually leading to slower price adaptations. Just to quote two markets that have a different price development curve. Eventually, all of that inventory is going to be repriced lower, but step by step.
What we would expect is that the market is continuously moving a little bit lower, but in a pace that it not drastically impacts our GPU, which you could have, could have seen or can have seen also with the Q2 numbers. With respect to Autohero GPU, we are facing that downward trend as exactly as every other participant as well, and the numbers that we have reported in Q2 are already impacted by that downward price trend. We are still confident that we have other measures to actually increase the GPU, so we would not be a major risk to not hit our GPU target in Autohero, but we're seeing that effect on the market. On marketing for merchant, your second question, we've seen increased, we've seen increased euro spend levels.
It's mainly a function of seasonally more expensive TV spend. TV still accounts for an important portion of our marketing mix. Q1 is the lowest TV seasonality scores because most of the retailers, I mean, non-car retailers, but retailers, are buying the most of the volume in Q4, and then Q1 will be the cheapest. Q2 moves up, Q3 moves up, Q4 is most expensive. This is mainly an effect of that. Then if you calculate marketing cost per unit, then obviously it will be higher because we purchased lower units as a factor of this muted merchant demand or, let's say, normalized merchant demand basket, and demand level that we have been already talking about.
Thanks, Christian. We got a few questions from Chetan Yarlagadda at HSBC.
Chris, your line is now open.
Yes. Hi, I hope you can hear me. Thanks for the opportunity to ask questions, three from my side. First, there was a quote on the slide that says, "We'll refocus merchant on growth, including new platform products." I'm curious what that means. What are, what are new platform products? I mean, in one of the other answers, you were talking about on a number of different new products to be market ready. Maybe I'm not up to speed, but I'm curious what that is. Yeah, second question. If I'm not mistaken, the advertising deals with Paris Saint-Germain and uncertain are coming down to an end or have already come down to an end?...
I'm just curious what happens with the money on those on those deals that you are saving now. Will they be reinvested? Will we see an impact on that in H2? Looking into next year, I'm just curious what your views are on that, on the marketing spend side. Maybe a bit more color on the ramp-up of the micro branches. Is there anything you can, you know, a bit more color, you know, CapEx, OpEx per store, how many people it takes, what the operating environment looks like? Just to get a bit more, bit more of an idea. How long it takes to get to 1,000. Is that a, you know, a long-term, long-term view? Yeah, a bit more color would be great. Thank you.
Cool. Yeah, thank you for those questions. On, on new products, I mean, the message that we wanted to send is, we see the potential, and we're actively working on new products, while our philosophy will be to disclose products when they're ready and when we actually can talk about them, what they are, and, how much volume contribution they could be in the future, and so on. With, yeah, regard to that, I'm sorry that I cannot exactly detail, what those products will be, because I think it's only most- or only valuable for you, for the market, and also for our customers, if we can actually... if, if we actually launch them.
The direction that we're thinking about is, on the one hand, products that involve finance, so supplying finance to more of our participants. On the other hand, we also feel like that there is the potential to add products where the, the processing and the, and the way that we're doing, like I was referring for remarketing. At the moment, if you're a remarketing merchant, it's, it's a very premium product that we're offering in remarketing. What I mean by that is, we are transporting or collecting the car from you as a dealership. We are handling the paperwork. We are doing the balance sheet clearing for you, so the car sits shortly on our balance sheet. We are dealing with the claims.
It's a, if you want so, for, out of, out of the perspective of the dealership, it's a luxury product, so it's a premium handling, a premium processing product. We see the potential to add, and enhance products or that product, by actually, providing a solution where all those requirements don't have to be met, and you don't need to wait for a transport, and potentially you can actually clear the transaction yourself with another dealer. That's kind of as far as I would go, because I don't, yeah, I, I, I would like to talk about it once we're ready and once we know exactly what it is. I also wanted to give this perspective to the market that this is not the end, yeah?
We think of AUTO1 as a platform that can carry many products, and that step by step, can broaden its reach across Europe and then at some point, also beyond. Referring to Paris Saint-Germain and Hertha BSC, though, the sponsoring deals that were not renewed, that's completely correct. This was a way to build a brand awareness very, very fast, and that worked out very well. Autohero made the trajectory to very strong awareness levels, let's say three, four, five times faster than our C2B brands, but it also cost that much more. We're not going to reinvest that EUR amounts.
We are instead, at the lower marketing budget, continue to run smaller brand campaigns and partnerships that we will also step by step disclose if there's something to announce there. But a lot of them are smaller, and let's say, I would say more suited to where we are now, in the sense that we have a high brand awareness, and we can continue to use brand marketing to keep that brand awareness at the levels where it's currently at. I think this describes more our strategy. With respect to the micro branch rollout, CapEx, OpEx, I would refer to Markus.
Yeah.
I think on the micro branch side, they vary much by size. Each one of them, you know, can vary all the way to being extremely small, but effectively, we want to be able to make them so that we can utilize our payroll the most effectively, as well as just getting the benefit of having customers who maybe not go by travel quite so far. On average, we see there being around EUR 15,000-20,000 CapEx per branch. We see the rollout happening really over the next 3-4 years to getting to that 1,000 branches over the next, you know, 4 years or the next few years that Christian talked about.
Okay. Fair deal. Thanks a lot.
I think to some degree, also addresses maybe a little bit on, on Adam's question earlier, which is, you know, not only are we seeing, huge number of those cars, you know, in our existing funnel, but of course, as we expand that funnel, we expect that also to, increase.
Thanks. Then, finally, we got Nizla Naizer from Deutsche Bank.
Nisla, your line is now open.
Hi, could you hear me okay?
Yes.
Yeah.
Oh, great. Just a couple of questions from my end. A lot have been answered already, but when you think of your EBITDA sort of trajectory to end this year, I think previously we've mentioned sort of a potential break even in Q4. Is that something you're comfortable for the group, given the underlying economics you're seeing? That's question one. Secondly, when it comes to sort of C2B units, are you seeing an improvement in the merchant behavior going into sort of Q3? Is sort of demand improving from you know, certain countries that you can maybe comment on already, just to see what that trend is looking like right now? Yeah, I guess my last question was on the rollout of those 1,000 additional sort of sourcing branches.
You mentioned that it's in a few years. Is there an OpEx impact related to this as well, or would that be absorbable? Any color there would be great. Thank you.
Markus, maybe you take 1 and 3, and I talk about C2B unit, kind of, current perspective. Thank you, Nizla.
Sure. On Q4 EBITDA or adjusted EBITDA breakeven, that is still very much our target. I think very focused on that. I think the one, the one caveat to that is that it, of course, depends on December seasonality. We clearly see ourselves reaching it over the course of Q4. As you saw last year, if, you know, in December, sometimes dealer behavior could really slow down dramatically. I'd say that's the, the one caveat to achieving that, but that's still very much the focus for this year. In, in terms of, I think your third question was on the OpEx impact.
Yeah, so I think in addition to the CapEx that I talked about, there are some, some, some rent, you know, some rent costs, associated with that. We would be looking in a fairly opportunistic way, to, to rent either, in, you know, parking lots and places like that, that, that come with, those branches. We kind of go from a, a broader assumption of, say, around EUR 35K or so, a year rent on average, but, you know, can be less or potentially a bit more. I think there is some payroll, associated with that. Again, because they're micro branches, trying to, keep those to a relatively small amount of, you know, somewhere between one, and two people per, per branch.
With respect to the, your second question, Nizla. C2B units improvement. I think we see, like, a slight upward trend, I mean, we're also now in the middle of August, this is, yeah, seasonally quite low. I think on relative terms, I would say it's looking a little bit better. We would expect to have much more growth in September, October, November, and hopefully a decent December, as Markus was saying.
Thank you.
Okay. Okay. That is it with questions. We're actually also exactly on the hour, so well timed, everybody. Thank you, Markus. Thank you, Christian. We'll either see you on one-on-ones or latest on the Q3 calls in early November. Thank you.
Yes, totally. Thank you, everyone, for all those very insightful questions, and hope to see you soon.
Thanks, all. Bye-bye.