Ballard, DaimlerChrysler and Ford Solidify Program Development Plans

Business Wire, July 8, 2004

VANCOUVER, British Columbia -- Memorandum of Understanding Provides for Realignment of Alliance Responsibilities to Ensure Long-Term Commitment to Advance Fuel Cell Technology and Commercialize Fuel Cell Vehicles

In February, Ballard Power Systems (NASDAQ:BLDP) (TSX:BLD) announced it was exploring strategic alternatives with DaimlerChrysler AG and Ford Motor Company to improve their Vehicular Fuel Cell Alliance to, among other things:

- Optimize the roles of the partners

- Advance development plans for the next generation fuel cell engine and

- Provide Ballard with improved financial and operational flexibility.

As a result of those discussions, the partners have entered into a comprehensive non-binding Memorandum of Understanding ("MOU") that outlines several initiatives, including further defining the roles and responsibilities of their Alliance and further establishing program funding requirements to ensure that the Alliance continues to build on its leadership.

All amounts are reported in US dollars unless otherwise noted.

Responsibilities

The roles and responsibilities of the Alliance will be redefined with Ballard intensifying its focus on its traditional strengths in fuel cell research, development and manufacturing, while continuing to support the development of its electric drive system.

Under the terms of the MOU, DaimlerChrysler and Ford would acquire Ballard's vehicular fuel cell systems business (Ballard AG, formerly XCELLSIS) and would jointly be responsible for the research, development and manufacturing of the vehicular fuel cell system (balance of plant).

"These roles and responsibilities support the Alliance's key strength - building on its critical mass of technical resources and intellectual capital to deliver on its promise of leadership in the automotive fuel cell industry," said Dennis Campbell, Ballard's President and Chief Executive Officer. "The Alliance shares a long-term commitment to advance fuel cell technology and commercialize fuel cell vehicles through collaboration."

Program Funding

The Alliance partners have jointly developed program plans for the next generation vehicular fuel cell, electric drive and fuel cell system. They have also established a framework for the development and funding of the follow-on next generation fuel cell and fuel cell technology.

Under the terms of the MOU, DaimlerChrysler and Ford would provide up to $58 million in funding for the next two generations of vehicular fuel cells and the next generation electric drive system.

"Our program plans and the development of our technology within the Alliance will balance the requirements of the vehicle, the fuel cell, the fuel cell system and the electric drive system to ensure that we are delivering against market requirements," said Dennis Campbell, Ballard's President and Chief Executive Officer. "We are being responsive to the needs of our partners to strengthen their competitive advantage and support the ambitious product development and commercialization goals established for the next generation automotive fuel cell vehicle."

Gerhard Schmidt, Vice President, Research and Advanced Engineering, Ford Motor Company said, "We believe the restructuring of the Alliance will keep Ford highly competitive in the development and introduction of hydrogen fuel cell-powered vehicles. It will allow Ford to build on our long record of fuel cell vehicle innovation and success, as we travel on a road to a hydrogen-powered future."

Operating Model

Ballard has made significant improvements to the fuel cell engine that have increased lifetime, lowered costs and improved performance, resulting in the successful development of world-leading fuel cell engine technology. These learnings will be utilized by the Alliance in the next generations of vehicular fuel cell technology.

Ballard, with its Alliance partners, will leverage the experience from the current generation program into a new operational model that will improve the research and development process for the next generation fuel cell technology.

"The success of our Alliance has and will continue to stem from the commitment of the partners, and the cooperative efforts and teamwork of all parties working within an open environment," said Dennis Campbell, Ballard's President and Chief Executive Officer. "Our new arrangement and operating model will continue to facilitate effective day-to-day operations of the Alliance to leverage each of our core competencies, with a shared long-term commitment to commercialize fuel cell vehicles."

Prof. Juergen Hubbert, Member of the Board of Management of DaimlerChrysler said, "We are committed to building on the Alliance's technical achievements and continued collaboration. This is vital to all partners as we work together to advance automotive fuel cell technology. By refocusing and optimizing the Alliance, we provide all partners with the flexibility to achieve our common goal - to deliver the best in class fuel cell vehicles."

Additional MOU Terms

Under the terms of the MOU, DaimlerChrysler and Ford would acquire ownership of Ballard Power Systems' 50.1 percent interest in Ballard AG, in exchange for the return to Ballard of 9 million of its common shares that are currently held by DaimlerChrysler and Ford, valued at $80.4 million based on the July 7, 2004 closing price of $8.93 per share. These shares would then be cancelled. Further, the forward sale agreement related to the purchase by Ballard of the remaining 49.9 percent interest of Ballard AG from DaimlerChrysler in exchange for the issuance of 7.6 million shares of Ballard to DaimlerChrysler, would be modified accordingly, resulting in a 100 percent ownership of Ballard AG by DaimlerChrysler and Ford. It is anticipated that Ballard will record a loss in the third quarter of 2004, estimated at $18 million, as a result of this transaction. This estimate is subject to a number of variables which may result in the estimate changing.