I think the auto battle feature should be available if you have enough healing potions in your inventory, the game should check your current health and your current armor and the calculate the amount of damage you will take, and if it reaches negative it should use some of your healing potions, but if you don't have enough potions, it shouldn't let you, also it the calculation should be based on an idiot, so the players would be rewarded for playing the battle themselves.
I know it will take a lot of work but the game would become very brain dead if playing the battle yourself wouldn't be rewarding enough after you earned the auto battle.
And as for when it should become unlocked, I think after you upgrade your armor to a level to unlock it, because currently armors are useless, the amount of money that you spend on them can be spent on way more healing potions that can be even more useful to you. Making the auto battle require max leveled armor should be a good way for both making the armors more useful and making sure the battles are so easy for the player when they reach this point in the game.