As the 1985 World Rally Championship drew to a close, Peugeot Talbot Sport and their upgraded 205 T16 "Evo 2" models were proving Audi Sport and their inherently flawed S1 quattro uncompetitive; thus, an "Evolution" was called for - the Audi Sport quattro S1 E2.
Extensive modifications were made to the bodywork, integrating enlarged wings and splitters. Weight distribution was improved by relocating the radiator to the rear alongside the oil/transmission coolers and alternator. Engine output was increased, and a Ferguson-formula Torsen centre differential was fitted. This allowed a variable torque split, improving handling compared to the constant 50/50 ratio split of the previous car.
Entirely custom rally specials, such as the Lancia Delta S4 and the Ford RS200 would continue to hassle the aging Audi Sport cars, and following the incidents of the 1986 Rallye de Portugal Audi would pull out of rallying altogether. The E2, after only entering six WRC events, took its sole victory at the 1985 Rallye Sanremo.