pdfTeX error (font expansion): auto expansion is only possible with scalable

You have to load a scalable font like lmodern:

\usepackage[T1]{fontenc}
\usepackage{lmodern}

or install the cm-super fonts.

To solve the problem navigate to C:\Program Files\MiKTeX 2.9\miktex\bin\x64 and run updmap.exe. The program may seem as it hangs for a while, but its probably because it tries to update the whole font tree. This solved the problem for me. After re-compiling everything should work fine.

UPDATE: Added cm-super. Please comment if that does not help in your case.

First of all (as pointed out by @Herbert), you have to load a scalable font such as lmodern or mathptmx:

\usepackage[T1]{fontenc}
\usepackage{lmodern}

This, however, did not solve the issue on my freshly installed MiKTeX system. I had to install the cm-super package and to update MiKTeX completely.

I had to do the following steps:

1. Start "MiKTeX Package Manager (Admin)"
2. Install the cm-super package.
3. I would recommend to update all packages to the latest version as described at https://tex.stackexchange.com/a/108490/9075.
4. Start "MiKTeX Settings (Admin)"
5. Press "Refresh FNDB"
6. Press "Update Formats"
7. Press "OK" (to close the app)
8. Recompile. Everything should work.

_{(source: miktex.org)}

See also https://docs.miktex.org/manual/configuring.html#fndbupdate

The installation hint of the cm-super package is taken from https://tex.stackexchange.com/a/310169/9075 and was also stated by @Herbert

MiKTeX does not automatically install cm-super when using microtype. This was discussed on the mailinglist on 2016-11, but no action was taken.