Hello Nish,
Welcome to our forum!
First of all, your understanding of Auto-Expanding Archives feature is correct. After auto-expanding archiving is enabled, the additional storage space is automatically added to the user's archive mailbox until it reaches 1.5 TB storage limit. For more information, you could refer to Enable auto-expanding archiving | Microsoft Learn.
However, as Vasil Michev said, Auto-Expanding Archives is not available for E1 Licenses.
In addition, the user with an Office 365 Email with E1's archive mailbox storage limits is only 50GB.
Therefore, it is recommended that you purchase and assign a qualifying license or delete unnecessary mail to release the storage space.
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