superswiss

Technically correct. BT is used to bootstrap the connection and exchange the Wi-Fi password, then it sets up a direct Wi-Fi connection for the higher bandwidth communication, but you only have to initiate the BT connection. The device handles the rest.

bruce_miranda

Yes I get that, but the reason I doubted myself was because the BT device name and the WiFi device name is exactly the same. And even though you pair a BT device, AA will make a WiFi connection to the same named device. This is why I thought I might have done something wrong and explicitly connected to the AA WiFi device. But I hadn't. It was AA that did this behind the scene.
What I find frustrating is that AA will stop your active WiFi connection and take over the WiFi comms channel for itself. Hence the WiFi icon disappears from the top of the phone and you get a new AA icon on the right.
Infact you might be fooled to think you have no WiFi connection until you go into the list of all your WiFi connections and you see that WiFi is being used and it says there "used by Android Auto".