Iterate two lists and update value on matching element

public class Car
{
   public string Name {get; set;}
   public string? InternalRef {get; set;}
}

var list1 = new List<Car>();
list1.Add(new Car{ Id = 1, Name = "Audi", InternalRef = "abc"});
list1.Add(new Car{ Id = 2, Name = "Toyota", InternalRef = "dfg"});
list1.Add(new Car{ Id = 3, Name = "Seat" });

var list2 = new List<Car>();
list2.Add(new Car{ Id = 1, Name = "Audi", InternalRef = "abc"});
list2.Add(new Car{ Id = 2, Name = "Toyota", InternalRef = "dfg"});
list2.Add(new Car{ Id = 3, Name = "Seat", InternalRef = "xvc" });

I want to iterate both lists and:

1. find all members exists with same id
2. set InternalRef value from list2 member to the matching list1 member where InternalRef is null.

var combined = (from c in list1 where list2.Any(x => c.Id == x.Id) select c).ToList();

> This will give me a combined list for all members with the same Id, but I still need a way to set InternalRef value

If we can assume the lists are sorted by Id as in your example code then you could use binary search to find matches between lists and set InternalRef where null rather quickly.

var list1 = new List<Car>();
list1.Add(new Car { Id = 1, Name = "Audi", InternalRef = "abc" });
list1.Add(new Car { Id = 2, Name = "Toyota", InternalRef = "dfg" });
list1.Add(new Car { Id = 3, Name = "Seat" });

var list2 = new List<Car>();
list2.Add(new Car { Id = 1, Name = "Audi", InternalRef = "abc" });
list2.Add(new Car { Id = 2, Name = "Toyota", InternalRef = "dfg" });
list2.Add(new Car { Id = 3, Name = "Seat", InternalRef = "xvc" });


var comparer = new MyComparer();    
for (int i = 0; i < list1.Count(); i++)
{
    var car = list1[i];
    int index = list2.BinarySearch(car, comparer);  
    
    if (index > 0 && car.InternalRef is null)
    {
        car.InternalRef = list2[index].InternalRef;
    }
}

public class Car
{
    public int Id { get; set; }
    public string Name { get; set; }
    public string? InternalRef { get; set; }
}

public class MyComparer : Comparer<Car>
{
    public override int Compare(Car x, Car y) => x.Id.CompareTo(y.Id);
}

Rather than trying to combine each matching element with LINQ and then set the value, why don't you just iterate list1 and then, if the car is missing the value, you can look it up in the second list:

// Setup
var list1 = new List<Car>();
list1.Add(new Car { Id = 1, Name = "Audi", InternalRef = "abc" });
list1.Add(new Car { Id = 2, Name = "Toyota", InternalRef = "dfg" });
list1.Add(new Car { Id = 3, Name = "Seat" });

var list2 = new List<Car>();
list2.Add(new Car { Id = 1, Name = "Audi", InternalRef = "abc" });
list2.Add(new Car { Id = 2, Name = "Toyota", InternalRef = "dfg" });
list2.Add(new Car { Id = 3, Name = "Seat", InternalRef = "xvc" });

// Actual code
foreach (var car in list1) {
    car.InternalRef ??= list2.FirstOrDefault(x => x.Id == car.Id)?.InternalRef;
}

Edit to add to the discussion about time complexity in the post comments: this will have a similar worst-case time complexity as your current algorithm, but in practice will be more efficient because we're only doing a lookup in list2 for those elements of list1 that don't have an InternalRef. So we greatly reduce the number of lookups we need to do if most elements in list1 already have an InternalRef.