MANAGEMENTS DISCUSSION AND ANALYSIS

This discussion and analysis of
financial condition and results of operations of Ballard Power Systems Inc.
(Ballard, the Company, we, us or our) is prepared as at March 1, 2017
and should be read in conjunction with our audited consolidated financial
statements and accompanying notes for the year ended December 31, 2016. The
results reported herein are presented in U.S. dollars unless otherwise stated
and have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board.
Additional information relating to the Company, including our Annual Information
Form, is filed with Canadian (www.sedar.com) and U.S. securities
regulatory authorities (www.sec.gov) and is also available on our website atwww.ballard.com.

BUSINESS OVERVIEW

At Ballard, we are building a clean
energy growth company. We are recognized as a world leader in proton exchange
membrane (PEM) fuel cell power system development and commercialization. Our
principal business is the design, development, manufacture, sale and service of
PEM fuel cell products for a variety of applications, focusing on our power
product markets of Heavy-Duty Motive (consisting of bus and tram applications),
Portable Power, Material Handling and Backup Power, as well as the delivery of
Technology Solutions, including engineering services, technology transfer and
the license and sale of our extensive intellectual property portfolio and
fundamental knowledgefor a variety of fuel cell applications.

A fuel cell is an environmentally clean
electrochemical device that combines hydrogen fuel with oxygen (from the air) to
produce electricity. The hydrogen fuel can be obtained from natural gas,
kerosene, methanol or other hydrocarbon fuels, or from water through
electrolysis. Ballards clean-energy fuel cell products feature high fuel
efficiency, relatively low operating temperature, low noise and vibration,
compact size, quick response to changes in electrical demand, and modular
design. Embedded in each Ballard fuel cell product lies a stack of unit cells
designed with our proprietary PEM technology which draws on intellectual
property from our patent portfolio together with our extensive experience and
know-how in key areas of fuel cell stack design, operation, production processes
and systems integration.

We plan to build value for our
shareholders by developing, manufacturing, selling and servicing
industry-leading fuel cell products to meet the needs of our customers in select
target markets.

We are pursuing a corporate strategy
and business model that mitigates risk by diversifying our business across a
portfolio of market opportunities that are enabled by substantially the same
core competencies, technology, products and intellectual property. Our business
model includes two growth platforms, multiple markets within each of these
platforms, geographic diversification and customer diversification.

We are also pursuing a strategy that
provides us with the opportunity for near-term commercialization, revenue and
profitability, while also enabling significant future value based on
longer-term market opportunities for our technology, products and intellectual
property, such as the global automotive fuel cell market.

Page 1 of
53

---





Our two-pronged approach is to build
shareholder value through the sale and service of power products and the
delivery of technology solutions. In power product sales, our focus is on
meeting the power needs of our customers by delivering high value, high
reliability, high quality and innovative clean energy power products that reduce
customer costs and risks. Through technology solutions, our focus is on enabling
our customers to solve their technical and business challenges and accelerate
their fuel cell programs by delivering customized, high value, bundled
technology solutions, including specialized engineering services, access to our
deep intellectual property portfolio and know-how through licensing or sale, and
providing technology component supply.

Starting in 2015, we increased our
efforts on growing our business in China. China represents a potentially unique
opportunity for clean energy solutions, given the convergence of macro trends
that include:

|● | continued urbanization of Chinas
  population;                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | continued infrastructure development and
      build-out of mass urban transportation;                                                                                                                                    
|● | the large size and continued growth of the
      Chinese vehicle market;                                                                                                                                                  
|● | rapid adoption of electric vehicles in China;                                                                                                                                                                             
|● | serious air quality challenges in a number of
      Chinese cities;                                                                                                                                                       
|● | a Chinese government mandate to address climate
      change; and                                                                                                                                                         
|● | strong national and local government commitment
      supporting the adoption and commercialization of fuel cells in
      transportation applications, including the implementation of supporting
      subsidy programs.

We have been pursuing a strategy that
includes the development of a local fuel cell supply chain and related ecosystem
to address the fast-growing clean energy bus and commercial vehicle markets in
China. As part of our strategy, we are pursuing technology transfer and
licensing opportunities with Chinese partners in order localize the manufacture
of Ballard-designed fuel cell modules and stacks for heavy-duty motive
applications in China, including bus, commercial vehicles and light-rail train
applications. Key elements of our strategy include adopting a risk-adjusted and
capital-light business model where we mitigate market adoption risk and capital
investment by engaging partnerships with strong local companies that market our
products and invest in manufacturing operations and supply chain localization.
We typically seek to structure our arrangements in a way that provide us with
the payment from our partners of significant value for technology transfer early
in the transfer process, requirements for ongoing purchases by our partners of
component supply by us, and the requirement of our partners to comply with
certain performance conditions and reporting requirements, including quality,
branding, intellectual property and minimum payments. We believe these typical
deal structures provide for near-, mid- and long-term revenue and cash flow
streams by building in program phases, technology transfer payments, license
payments, required supply purchases, and recurring royalty structures. We also
typically structure our commercial deals in China to restrict sales within China
and to position Ballard as the exclusive purchaser of modules or stacks
manufactured by our partners in China for sale outside of China. We believe this
structure provides us with additional flexibility in satisfying global market
demand for our modules and stacks by supplementing or mitigating our mid- and
long-term manufacturing strategy.

Page 2 of
53

---





We also structure our business model in
China to protect our core intellectual property. For example, we do not provide
technology transfer and licensing relating to the manufacture of our proprietary
membrane electrode assemblies (MEAs), key technology components in our fuel
cell stacks. We currently plan to continue to manufacture our MEAs in our head
office facilities in Burnaby, Canada. Also, we typically restrict technology
transfer and licenses to current generation technology and products. We continue
to make significant investment in next generation products and technology,
including modules and systems integration, stacks, and MEAs. We reserve
flexibility on how we introduce these next generation products to the markets,
including to China.

We are based in Canada, with head
office, research and development, testing, manufacturing and service facilities
in Burnaby, British Columbia. In the United States, we have a sales,
manufacturing, research and development facility in Southborough, Massachusetts,
and have a sales, service and research and development facility in Hobro,
Denmark. Weve also recently announced the opening of our first corporate office
headquartered in Guangzhou, the capital of Guangdong Province, China. This
office will serve as the Companys initial operations center in China,
supporting management, sales and business development, technical, after-sales
and administrative support personnel.

RECENT DEVELOPMENTS

On February 16, 2017, we announced that
the signing of definitive agreements relating to technology transfer, licensing
and supply arrangements with strategic partner Zhongshan Broad-Ocean Motor Co.,
Ltd. (Broad-Ocean) for the assembly and sale of FCveloCity® 30-kilowatt (kW)
and 85kW fuel cell engines in China. Under the deal, Broad-Ocean will
manufacture fuel cell modules in three strategic regions in China, including
Shanghai. The deal has an estimated value of approximately $25 million in
revenue to Ballard over the initial 5-year term, including approximately $12
million in Technology Solutions revenue. In each of the three assembly operation
locations, Broad-Ocean plans to engage with local governments as well as with
bus and commercial vehicle OEMs for deployment of fuel cell buses and commercial
vehicles incorporating Ballard-designed modules manufactured by Broad-Ocean.
Broad-Ocean will make payments to Ballard at closing and based on certain
commissioning milestones, initial supply agreements, and recurring royalty
payments. Ballard will also have the exclusive right to purchase fuel cell
engines from any of the Broad-Ocean manufacturing operations for sale outside
China. Each fuel cell engine assembled by Broad-Ocean will use
FCvelocity®-9SSL fuel cell stacks, initially manufactured by Ballard at its
Vancouver HQ facility. Stack supply will be transferred to Guangdong Synergy
Ballard Hydrogen Power Co., Ltd. (Synergy JVCo), the joint venture owned by
Guangdong Nation Synergy Hydrogen Power Technology Co. Ltd. (a member of the
Synergy Group) and Ballard in the City of Yunfu in Chinas Guangdong Province,
once Synergy JVCo becomes fully operational, expected in late-2017. From that
time forward, Ballard will supply MEAs on an exclusive basis for stacks
manufactured by Synergy JVCo. This transaction is subject to customary closing
conditions and is expected to close by Q2 2017. Founded in 1994, Broad-Ocean is
headquartered in the City of Zhongshan in Guangdong Province and is listed on
the Shenzhen Stock Exchange. Broad Ocean is a leading global manufacturer of
motors that power small and specialized electric machinery for electric vehicles
(EVs), including buses, commercial vehicles and passenger vehicles, and for
heating, ventilation and air conditioning (HVAC). Broad-Ocean's EV Operations
Platform operates a commercial vehicle leasing business in China through which
it buys new energy vehicles, including EVs, and subsequently leases these buses
and commercial vehicles. Broad-Ocean has now expanded this business to include
fuel cell vehicles. On July 18, 2016 Broad-Ocean signed an agreement with
partner companies relating to the purchase of up to 10,000 fuel cell vehicles,
including buses and delivery trucks, all of which are expected to have Ballard's
leading PEM fuel cell technology inside. On August 18, 2016 Broad-Ocean became
Ballards largest shareholder following an investment of $28.3 million in
Ballard common shares, representing approximately 9.9% of Ballards outstanding
common shares following the transaction.

Page 3 of
53

---





The Broad-Ocean investment, initially
announced on July 26, 2016, was made through a subscription and purchase of
17.25 million Ballard common shares issued from treasury at a price per share of
$1.64 (based on a 20-day volume weighted average price calculation). The
investment represents approximately 9.9% of Ballards outstanding common shares
following the transaction. Ballard intends to use the proceeds from the
financing for general corporate purposes, including funding of potential future
acquisitions or investments in complementary businesses, products or
technologies. Broad-Ocean and Ballard have also entered into an Investor Rights
Agreement under which Broad-Ocean has agreed to a two-year hold period on the
17.25 million Ballard common shares that it has purchased in the financing; has
provided Ballard with a right of first refusal to sell to Broad-Ocean additional
treasury shares if Broad-Ocean wishes to increase its ownership position up to
20%; and has agreed to certain "standstill" provisions effective for a two-year
period under which Broad-Ocean will not purchase more than 19.9% of Ballard's
outstanding common shares without receiving Ballard board approval. Ballard
granted Broad-Ocean certain anti-dilution rights to maintain its 9.9% ownership
interest. Finally, Broad-Ocean has no special right to appoint nominees to
Ballard's board of directors.

On February 14, 2017, we announced the
opening of our first corporate office headquartered in Guangzhou, the capital of
Guangdong Province, China. This office will serve as the Companys initial
operations center in China, supporting management, sales and business
development, technical, after-sales and administrative support personnel. The
Company also recently completed the registration of a wholly foreign-owned
enterprise (WFOE) with the name of  (Guangzhou Ballard Power Systems
Co., Ltd.).

On February 13, 2017, we announced the
Company's membership in the "Fuel Cell Electric Bus Commercialization
Consortium" (FCEBCC), a large-scale project for which funding has now been
committed to support deployment of 20 zero-emission hydrogen fuel cell electric
buses at two California transit agencies. Ten buses are to be deployed with
Alameda Contra-Costa Transit District (AC Transit) and 10 buses are to be
deployed with the Orange County Transportation Authority (OCTA). Ballard will be
providing 20 of its FCveloCity®-HD 85-kilowatt fuel cell engines to New Flyer of
America Inc., a subsidiary of New Flyer Industries Inc. ("New Flyer"), the
largest transit bus and motor coach manufacturer and parts distributor in North
America. Ballard's engines will power New Flyer 40-foot Xcelsior XHE40 fuel cell
buses, which are planned to be delivered and in-service with AC Transit and OCTA
by the end of 2018. The buses are to be supported by advanced hydrogen fueling
infrastructure provided by The Linde Group.

Page 4 of
53

---





On January 24, 2017, we announced the
signing of an initial Equipment Sales Agreement with Zhuhai Yinlong Energy Group
(Yinlong), a major Chinese manufacturer of battery electric buses, for 10
FCveloCity®-MD 30-kilowatt fuel cell engines. Ballard plans to deliver the
engines in 2017 for integration into Yinlong buses that are expected to be
deployed in Beijing.

On January 19, 2017, we announced that
our subsidiary, Protonex Technology Corporation (Protonex), received
certification from the U.S. Government enabling its SPM-622 (Squad Power
Manager) and VPM-402 (Vest Power Manager) products to be exported under the
Commerce Departments Export Administration Regulations, classification EAR99.
With this classification, these products can be sold to allied military partners
as well as commercial customers without the need for an export license. On June
1, 2016, we announced that Protonex had received a $5.8 million follow-on
purchase order for the supply of Squad Power Manager (SPM-622) Special
Operations Kits for end customer U.S. Special Operations Command. The purchase
order represents follow-on business from a $2.8 million SPM order from the same
customer received in December 2015. The purchase order was issued by the Program
Executive Office  Soldier, as part of the Nett Warrior program (Nett
Warrior). Amounts earned from these agreements ($1.4 million in the fourth
quarter of 2016; $6.4 million in fiscal 2016; $1.7 million in the fourth quarter
of 2015 and in fiscal 2015) are recorded as Portable Power revenues.

On January 10, 2017, we announced that
we had purchased all of the shares in the Companys European subsidiary held by
Dansk Industri Invest A/S (previously Dantherm Air Handling A/S). As a result, Ballard now owns 100% of the Companys subsidiary in Europe,
Ballard Power Systems Europe A/S (formerly Dantherm Power A/S). Ballard held 57%
of the shares in Ballard Power Systems Europe A/S before purchasing the
remaining 43% of shares from Dansk Industri Invest A/S on January 5th, 2017. For
a nominal payment, Ballard acquired the remaining shares and obtained the
cancellation of debt owed by Ballard Power Systems Europe A/S to Dansk Industri
Invest A/S of approximately $0.5 million.

On November 29, 2016, we announced the
signing of a Long-Term Sales Agreement (LTSA) with Solaris Bus & Coach
(Solaris), a bus OEM headquartered in Poland, for the sale and supply of fuel
cell modules to support deployment of Solaris fuel cell buses in Europe. An
initial order was placed under the LTSA for 10 FCveloCity®-HD fuel cell modules,
with deliveries planned to start in 2017.

On October 25, 2016, we announced the
closing of a transaction with the Synergy Group for the establishment of an
FCvelocity®-9SSL fuel cell stack production operation in the City of Yunfu, in
Guangdong Province, China. The transaction was originally announced on July 18,
2016. The fuel cell stacks will be packaged into locally-assembled fuel cell
engines and integrated into zero-emission buses and commercial vehicles in
China. The transaction has a contemplated minimum value to Ballard of
approximately $170 million over 5-years. As of the closing of this transaction
in October 2016, we had received payments totaling $10.9 million and received
further payments of $8.1 million in December 2016 in relation to a contract
milestone, for total receipts of $19.0 million. The transaction includes these
key elements:

|● | Ballard is expected to receive
      approximately $20 million for technology transfer services, test
      equipment, production equipment specification and procurement services,
      training and commissioning support in relation to the establishment of a
      production line in Yunfu for the manufacture and assembly of
      FCvelocity®-9SSL fuel cell stacks, with most of this revenue expected to
      be recognized in the fourth quarter of 2016 through 2017 Amounts earned
      from these agreements ($4.4 million in the fourth quarter of 2016 and in
      fiscal 2016) are recorded as Technology Solutions revenues;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 5 of
53

---





|● | A
      joint venture - named Guangdong Synergy Ballard Hydrogen Power Co., Ltd.
      (Synergy JVCo) - has been registered in China to undertake the
      FCvelocity®-9SSL fuel cell stack manufacturing operations, with Synergy
      JVCo owned 90% by the Synergy Group and 10% by Ballard; and                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | On
      commissioning of the stack production line, expected in late 2017, Ballard
      will be the exclusive supplier of membrane electrode assemblies (MEAs)
      for each fuel cell stack manufactured by Synergy JVCo, with minimum annual
      MEA volume commitments on a take or pay basis totaling in excess of $150
      million over the initial 5-year term from 2017 to 2021. Amounts earned
      from the MEA supply agreement (nil in fiscal 2016) will be recorded as
      Heavy-Duty Motive revenues.

During March 2017, Ballard plans to
contribute approximately $1.0 million for its 10% interest in Synergy JVCo.
Under the terms of the agreement, Ballard has the right to appoint one of the
three Synergy JVCo board directors, has veto rights over certain key Synergy
JVCo decisions, and has no further obligation to provide future funding to
Synergy JVCo. Ballards CEO, Randall MacEwen, was appointed to the board of
Synergy JVCo effective as of closing. After commissioning of the operation,
Synergy JVCo will have an exclusive right to manufacture and sell
FCvelocity®-9SSL stacks in China. Exclusivity will be subject to certain
performance criteria of Synergy JVCo, including compliance with a code of
ethics, compliance with Ballards quality policies, compliance with Ballards
branding policies, achievement of the minimum annual take or pay MEA volumes,
compliance with payment terms, and compliance with certain intellectual property
covenants. Ballard will have the exclusive right to purchase FCvelocity®-9SSL
fuel cell stacks and sub-components from Synergy JVCo for sale outside
China.

On July 11, 2016, we announced the
signing of definitive agreement with the Synergy Group for a Technology
Solutions transaction to enable Synergy Group to exclusively manufacture and
sell Ballard's direct hydrogen FCgen®-H2PM fuel cell backup power systems in
China. Under the agreement, Ballard will license the designs of its 1.7 and 5
kilowatt FCgen®-H2PM systems to Synergy Group for manufacture in the City of
Yunfu in Guangdong Province and for exclusive sales in China. Synergy Group
prepaid Ballard an upfront Technology Solutions fee of $2.5 million in the
second quarter of 2016 for the license and related technology services. Synergy
Group is required to make additional license royalty payments to Ballard for
each FCgen®-H2PM system that it manufactures and sells, subject to annual
minimums starting in 2018. Ballard will also be the exclusive supplier of
air-cooled fuel cell stacks to Synergy Group for use in the FCgen®-H2PM systems
that it produces and sells. Technology transfer work performed under this
agreement is recorded as Technology Solutions revenues ($0.8 million in the
fourth quarter of 2016; $1.3 million in fiscal 2016) whereas sales of fuel cell
stacks will be recorded as Backup Power revenues.

Page 6 of
53

---





During the second quarter of 2016, we
completed the sale of certain of our methanol Telecom Backup Power business
assets to Chung-Hsin Electric & Machinery Manufacturing Corporation
(CHEM), a Taiwanese power equipment company, for a purchase price of up to
$6.1 million of which $3 million was paid on closing (the CHEM Transaction).
The remaining potential purchase price of up to $3.1 million consists of an
earn-out arising from sales of methanol Telecom Backup Power systems by CHEM
during the 18-month period to November 2017 derived from the sales pipeline
transferred to CHEM on closing. During the second quarter of 2016, we recorded a
loss on sale of assets of ($0.4) million after estimating the fair value of the
remaining potential purchase price of up to $3.1 million to approximate $1.8
million. The final gain (loss) on sale arising from the CHEM Transaction is
subject to change depending upon the final earn-out amount actually received by
Ballard through November 2017. On the closing of this transaction, CHEM received
certain assets related to the methanol Telecom Backup Power line of our business
including intellectual property rights, and physical assets such as inventory
and related product brands. We also transferred to CHEM a number of our
engineering, sales, and service employees involved in this business. Ballard
continues to retain the Company's direct hydrogen fuel cell backup power system
assets, primarily in our Ballard Power Systems Europe A/S subsidiary (formerly
named Dantherm Power A/S) located in Denmark. The direct hydrogen fuel cell
backup power system has since been rebranded FCgen®-H2PM. As noted above,
certain designs of the FCgen®-H2PM system were exclusively licensed to Synergy
Group for manufacture and sale in China.

In the CHEM Transaction, we also signed
a fuel cell stack supply agreement with CHEM which includes minimum sales of $2
million over an 18-month period. Amounts earned under the fuel cell stack supply
agreement with CHEM ($0.6 million in the fourth quarter of 2016; $1.7 million in
fiscal 2016) are recorded as Backup Power revenues.

In early 2016, in parallel to our
review of strategic alternatives for our methanol Telecom Backup Power assets,
we implemented a cost reduction initiative, primarily focused on reducing our
operating cost base associated with our methanol Telecom Backup Power
activities. As part of this cost reduction initiative, three executives departed
from the Company effective March 31, 2016. Responsibilities of the departed
executives have been assumed by other management personnel. During fiscal 2016,
total restructuring charges of ($2.3) million were expensed as a result of these
cost reduction initiatives that included the elimination of approximately 50
positions, including the three executive-level positions, as well as costs
associated with the closure of the contract manufacturing facility in Tijuana,
Mexico. We also recorded impairment losses of ($1.2) million in the first
quarter of 2016 related to a write-down of certain methanol Telecom Backup Power
intangible assets and property, plant and equipment.

On December 31, 2008, we completed a
restructuring agreement (Arrangement) with Superior Plus Income Fund
(Superior Plus), whereby Ballard caused its entire business and operations,
including all assets and liabilities, to be transferred to a new corporate
entity, such that the new corporate entity held all of the same assets,
liabilities, directors, management and employees as Ballard formerly had under
its old corporate entity, except for its tax attributes. The Arrangement
included an indemnification agreement (the "Indemnity Agreement") which set out
each partys continuing obligations to the other including a provision for
adjustments to be paid by us, or to us, depending on the final determination of
the amount of our Canadian non-capital losses, scientific research and
development expenditures and investment tax credits generated to December 31,
2008, to the extent that such amounts are more or less than the amounts
estimated at the time the Arrangement was executed. In 2015, we reached
agreement and signed mutual releases with Superior Plus as to the full and final
amount payable to us under the Indemnity Agreement and received final cash
proceeds of $3.3 million (Canadian $4.6 million) in February 2016. The
settlement proceeds were recorded as a credit to shareholders equity in fiscal
2015 consistent with the accounting of the original transaction in
2008.

Page 7 of
53

---





On January 21, 2016, we announced the
signing of an equipment supply agreement, valued at $12 million, with an
existing partner in China, Guangdong Synergy Hydrogen Power Technology Co., Ltd.
(a member of the Synergy Group) to provide FCvelocityTM-9SSL fuel cell stacks
for range extension applications in commercial vehicles in China. Ballard
expects to deliver the stacks in 2016 and 2017. Synergy Group will collaborate
with Dongfeng Xiangyangtouring Car Co., Ltd. (DFAC), which is part of Dongfeng
Motor Corporation, a Chinese state-owned automobile manufacturer headquartered
in Wuhan. Amounts earned from this agreement ($2.5 million in the fourth quarter
of 2016; $7.9 million in fiscal 2016) are recorded as Heavy-Duty Motive
revenues.

On November 10, 2015, weannounced that we had
closed a $5 million strategic equity investment in Ballard by Nisshinbo Holdings
Inc. (Nisshinbo) in Japan, as previously announced on October 27, 2015. The
investment was made through a private placement subscription of approximately
3.3 million Ballard common shares issued from treasury at $1.5049 per share
(based on a 10-day volume weighted average share price calculation). Nisshinbo
provides low-carbon, optimized products across a range of business lines,
including chemicals, precision instruments, electronics, automotive brakes,
textiles and paper. Nisshinbo has been a long-time leading global supplier of
carbon plates, used in the construction of membrane electrode assemblies
(MEAs), to the fuel cell industry. On January 20, 2016, we announced that we
had received a follow-on purchase order from Nisshinbo for a further phase of a
Technology Solutions program related to the development of a breakthrough
catalyst technology intended to reduce the cost of certain proton exchange
membrane (PEM) fuel cells. The program has advanced through numerous phases
during the past three years.

On November 1, 2015, we announced that
the signing of a definitive agreement with Tangshan Railway Vehicle Company,
Limited (TRC) for the development of a new fuel cell module that will be
designed to meet the requirements of tram or Modern Ground Rail Transit
Equipment applications. This agreement, with a value of approximately $3
million, contemplates that TRC trams will use next-generation Ballard fuel cell
power modules designed specifically for the Modern Ground Rail Transit Equipment
application. The purpose-designed product is expected to deliver at least 200
kilowatts of power. Amounts earned from this agreement ($0.6 million in the
fourth quarter of 2016; $2.0 million in fiscal 2016; $0.5 million in the fourth
quarter of 2015 and in fiscal 2015) are recorded as Technology Solutions
revenue.

On October 1, 2015, we completed the
acquisition of Protonex, a leading designer and manufacturer of advanced power
management products and portable fuel cell solutions. The signing of a
definitive agreement to acquire Protonex was previously announced on June 29,
2015. As consideration for the transaction, we assumed and paid certain of
Protonex debt obligations and transaction costs on closing of approximately
$3.8 million, and issued 11.4 million of Ballard shares at fair value of $1.20
per share, or approximately $13.7 million, for total purchase consideration of
$17.5 million.

Page 8 of
53

---





On September 28, 2015, we announced the
signing of a joint development agreement and a supply agreement to develop and
commercialize a fuel cell engine specifically designed for integration into low
floor trams manufactured by CRRC Qingdao Sifang Company, Ltd. (CRRC Sifang), a
Chinese rolling stock manufacturer. The agreements include delivery of ten
customized FCvelocity® modules and have an initial expected value of
approximately $6 million. Ballard plans to develop a new prototype configuration
of its FCvelocity® fuel cell module to deliver 200 kilowatts of net power for
use in powering trams in urban deployments. An initial deployment of eight fuel
cell-powered trams is planned by CRRC Sifang and the City of Foshan on the
Gaoming Line is expected to start in 2018. Amounts earned from this agreement
($0.1 million in the fourth quarter of 2016; $0.9 million in fiscal 2016; nil in
fiscal 2015) are recorded as either Heavy-Duty Motive or Technology Solutions
revenues depending on the nature of work performed.

On September 25, 2015, we announced the
signing of a long-term license and supply agreement with Synergy Group to
provide fuel cell power products and technology solutions in support of the
planned deployment of approximately 300 fuel cell-powered buses in the cities of
Foshan and Yunfu, China. The agreement has an estimated initial value of
approximately $17 million with the opportunity for significant recurring
royalties starting in 2017. The agreement includes the supply and sale of
fully-assembled 30kW to 85kW fuel cell power modules, ready-to-assemble module
kits, a technology license for localization of assembly, supply of proprietary
fuel cell stacks and long-term recurring royalties leveraged to unit volumes of
locally assembled modules. Amounts earned from this agreement ($6.6 million in
the fourth quarter of 2016; $13.7 million in fiscal 2016; $2.9 million in the
fourth quarter of 2015 and in fiscal 2015) are recorded as either Heavy-Duty
Motive or Technology Solutions revenues depending on the nature of work
performed.

On September 24, 2015, we announced
that we are developing, and plan to launch, two new configurations of our
FCvelocity®-HD7 fuel cell module in 2016. The two new module configurations will
expand Ballards product portfolio and provide customers with increased
flexibility to address a range of emerging power needs in heavy-duty transit
applications, such as buses. Ballards latest-generation FCvelocity®-HD7 was
launched in a net 85kW power configuration in June 2015 at the UITP World
Congress and Exhibition in Milan, Italy. This initial 85kW configuration will
typically be used to power large urban transit buses. The two new product
configurations deliver net power of 30kW and 60kW, respectively, with sales
launched in 2016 to power smaller buses and to provide range extension
solutions. During fiscal 2016 and 2015, FCvelocity®-HD7 development costs of
$1.1 million and $1.4 million, respectively, were capitalized as fuel cell
technology intangible assets.

On July 22, 2015, we announced the
signing of an agreement to provide a 1 megawatt (1MW) ClearGen fuel cell
distributed generation system for Hydrogène de France (HDF) which will be
deployed at an Akzo Nobel sodium chlorate chemical plant in Ambres near
Bordeaux, France. The program agreement is structured in two phases. Under the
first phase, completed in 2016, Ballard received an initial payment of €1.7
million to undertake engineering services and core component development work.
Under the second phase, targeted for completion in late 2017, Ballard received
an additional €1.6 million in February 2017 for onsite assembly and
commissioning. Amounts earned from this agreement ($0.2 million in the fourth
quarter of 2016; $1.0 million in fiscal 2016; $0.7 million in the fourth quarter
of 2015; $0.8 million in fiscal 2015) are recorded as Technology Solutions
revenue.

Page 9 of
53

---





On June 8, 2015, we announced the
signing of definitive license and supply agreements with Nantong Zehe New Energy
Technology Co., Ltd. (Nantong Zehe) and Synergy Group to provide fuel cell
power products and technology solutions to support the planned deployment of an
initial 33 fuel cell-powered buses in two Chinese cities. The agreements have an
estimated value of approximately $10 million, the majority of which was
recognized in 2015. The agreements include an initial order from Nantong Zehe
(announced in April 2015) for the supply of FCvelocity®-HD7 bus power modules to
power eight buses in addition to new orders for the supply of additional power
products and technology solutions including a non-exclusive license for local
assembly of FCvelocity®-HD7 bus power modules for use in clean energy buses in
China. In addition, Ballard will be the exclusive supplier of its proprietary
fuel cell stacks for use in power modules assembled in China under these
agreements. Amounts earned from these agreements (nil in the fourth quarter of
2016; $0.5 million in fiscal 2016; $0.9 million in the fourth quarter of 2015;
$8.6 million in fiscal 2015) are recorded as either Heavy-Duty Motive or
Technology Solutions revenues depending on the nature of work
performed.

On February 11, 2015, we entered into a
transaction with Volkswagen Group (Volkswagen) to transfer certain
automotive-related fuel cell intellectual property for an aggregate amount of
approximately $80 million including the benefits of a two-year extension of our
existing technology development and engineering services agreement with
Volkswagen previously announced on March 6, 2013 (see below for additional
details). Under the transfer agreement (the Volkswagen IP Agreement), Ballard
transferred to Volkswagen ownership of the automotive-related portion of the
fuel cell intellectual property assets previously acquired by us from United
Technologies Corporation (UTC) on April 24, 2014 (the UTC Portfolio),
through two separate transactions with Volkswagen for total gross proceeds of
$50 million:

|(i) | On the closing of the initial
      transaction on February 23, 2015, Ballard transferred ownership of the
      automotive-related patents and patent applications of the UTC Portfolio in
      exchange for gross proceeds of $40 million. This receipt triggered a 25%,
      or $10.0 million, license fee payment to UTC. Although ownership of the
      UTC patents and patent applications was transferred to Volkswagen, Ballard
      received a royalty-free back-license to all of the transferred UTC patents
      and patent applications for use in all non-automotive applications, in bus
      applications and in certain limited pre-commercial automotive
      applications. On the closing of the sale of the automotive-related patents
      and patent applications of the UTC Portfolio in the first quarter of 2015,
      we recognized a gain on sale of intellectual property of $14.2 million on
      net proceeds of $29.5 million. We retain a royalty obligation to pay UTC a
      portion (typically 25%) of all future intellectual property sale and
      licensing income generated from our intellectual property portfolio until
      April 2029.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 10 of
53

---





|(ii) |  | On the closing of the
      second transaction on December 2, 2015, Ballard transferred a copy of the
      automotive-related know-how of the UTC Portfolio in exchange for gross
      proceeds receivable of $10 million. This receipt, collected in the first
      quarter of 2016, triggered a 9%, or $0.9 million, payment to UTC in the
      first quarter of 2016. On the closing of the sale of a copy of the
      know-how, Ballard retained full ownership of the UTC know-how including
      the right to sell additional copies of the know-how to third parties as
      well as retaining the right to use the know-how in all our applications.
      On the closing of the sale of a copy of the automotive-related know-how in
      the fourth quarter of 2015, we recognized an additional gain on sale of
      intellectual property of $5.4 million on net proceeds of $9.1
      million.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On March 6, 2013, we entered into a
technology development and engineering services agreement with Volkswagen to
advance development of fuel cells for use in powering demonstration cars in
Volkswagens fuel cell automotive research program. The initial contract term
was 4-years commencing in March 2013, with an option by Volkswagen for a 2-year
extension. On the closing of the Volkswagen IP Agreement in February 2015, this
technology development and engineering services was extended 2-years to February
2019. Over the full 6-years, this technology development and engineering
services contract has an estimated value of Canadian $100-140 million and is
focused on the design and manufacture of next-generation fuel cell stacks for
use in Volkswagens fuel cell demonstration car program. Volkswagen also retains
an option to further extend this program by 2-years to February 2021. Amounts
earned from this and related agreements ($4.0 million in the fourth quarter of
2016; $13.9 million in fiscal 2016; $3.6 million in the fourth quarter of 2015;
$14.5 million in fiscal 2015) are recorded as Technology Solutions revenues.

OPERATING SEGMENTS

We report our results in the single
operating segment of Fuel Cell Products and Services. Our Fuel Cell Products and
Services segment consists of the sale and service of PEM fuel cell products for
our power product markets of Heavy-Duty Motive (consisting of bus and tram
applications), Portable Power, Material Handling and Backup Power, as well as
the delivery of Technology Solutions, including engineering services, technology
transfer and the license and sale of our extensive intellectual property
portfolio and fundamental knowledgefor a variety of fuel cell applications.

As a result of the sale of certain of
our methanol Backup Power assets to CHEM in the second quarter of 2016, we have
renamed the former Telecom Backup Power market as the Backup Power market. The
Backup Power market includes revenues associated with our direct hydrogen fuel
cell backup power systems, methanol fuel cell backup power systems prior to the
CHEM transaction, and fuel cell stacks sold for all backup power applications
including those sold to CHEM.

Page 11 of 53

---





|SELECTED ANNUAL FINANCIAL
    INFORMATION                           |  |                       |         |      |   |         |  
|------------------------------------------------------------------- |  | --------------------- | ------- | ---- | - | ------- | -
|Results of
      Operations                                         |  | Year
      ended,     |        
|                                                                    |  | 2016                  |         | 2015 |   | 2014    |  
|(Expressed in thousands of
      U.S. dollars, except per share     |  |                       |         |      |   |         |  
|amounts and gross
      margin %)                                   |  |                       |         |      |   |         |  
|From
      continuing operations                                    |  |                       |         |      |   |         |  
|Revenues                                                            |  | $                     | 85,270  |      | $ | 56,463  |  
|Gross margin                                                        |  | $                     | 24,184  |      | $ | 9,974   |  
|Gross margin %                                                      |  |                       | 28%     |      |   | 18%     |  
|Total Operating Expenses                                            |  | $                     | 42,253  |      | $ | 34,858  |  
|Cash Operating Costs(1)                                             |  | $                     | 34,338  |      | $ | 29,050  |  
|Adjusted EBITDA(1)                                                  |  | $                     | (9,883  | )    | $ | (15,259 | )
|Net loss from continuing
      operations attributable to Ballard   |  | $                     | (21,112 | )    | $ | (5,815  | )
|Net loss per share attributable to Ballard,
      basic and diluted |  | $                     | (0.13   | )    | $ | (0.04   | )
|Adjusted Net Loss(1)                                                |  | $                     | (19,349 | )    | $ | (24,791 | )
|Adjusted Net Loss per share(1)                                      |  | $                     | (0.12   | )    | $ | (0.18   | )
|From
      discontinued operations                                  |  |                       |         |      |   |         |  
|Net earnings (loss) from discontinued
      operations              |  | $                     | -       |      | $ | -       |  
|Net earnings (loss) per share from discontinued
      operations    |  | $                     | -       |      | $ | -       |  
|Financial
      Position                                            |  | At December
      31, |        
|(expressed in thousands of U.S. dollars)                            |  |                       | 2016    |      |   | 2015    |  
|Total assets                                                        |  | $                     | 183,446 |      | $ | 161,331 |  
|Cash, cash equivalents and short-term investments                   |  | $                     | 72,628  |      | $ | 40,049  |  

|1 |  | Cash Operating Costs,
      Adjusted EBITDA, Adjusted Net Loss and Adjusted Net Loss per share are
      non-GAAP measures. We use certain Non-GAAP measures to assist in assessing
      our financial performance. Non-GAAP measures do not have any standardized
      meaning prescribed by GAAP and are therefore unlikely to be comparable to
      similar measures presented by other companies. See reconciliation to GAAP
      in the Supplemental Non-GAAP Measures section.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2016 Performance compared to 2016
Business Outlook

Although we did not provide specific
financial performance guidance for 2016, we did indicate that we expected to end
2016 with year-over-year revenue growth and a strengthened balance sheet. On a
year-to-year basis, we also indicated that we expected to improve gross margin
and rationalize certain operating costs.

Actual revenues of $85.3 million in
2016 increased 51%, or $28.8 million, compared to 2015. As expected, revenue
growth in 2016 was driven by growth in our Heavy-Duty Motive and Technology
Solutions markets as well as a full-year contribution from our Portable Power
market.

Gross margin as a percentage of
revenues in 2016 was 28%, compared to 18% in 2015. As expected, the gross margin
improvement in 2016 was driven primarily by the increase in volumes and improved
product mix, including important contributions from our Heavy-Duty Motive,
Portable Power and Technology Solutions markets. This increase was also
supported by product cost reductions and improved operating efficiencies as we
realized the benefits from the expected increase in volumes.

On operating costs, as expected we
completed the review of strategic alternatives for our methanol Telecom Backup
Power business in 2016 culminating with the CHEM Transaction in the second
quarter of 2016. We also completed the corresponding rationalization of our
methanol Telecom Backup Power engineering, sales and executive team cost
structures that commenced in late 2015. The rationalization initiatives are
expected to yield annualized operating expense savings in excess of $6
million.

Page 12 of 53

---





Finally, we ended fiscal 2016 with cash
and cash equivalents of $72.6 million, compared to $40.0 million at the end of
fiscal 2015. As expected, the strengthened balance sheet was supported by the
improved financial performance in 2016 as compared to 2015, combined with the
closing of a $28.3 million strategic equity investment made by Broad-Ocean in
Ballard on August 18, 2016.

RESULTS OF OPERATIONS  Fourth
Quarter of 2016

|Revenue and gross
      margin           |  |                                 |        |      |   |          |  |   |          |   | 
|---------------------------------------- |  | ------------------------------- | ------ | ---- | - | -------- |  | - | -------- | - | 
|(Expressed in thousands of U.S. dollars) |  | Three months ended December 31,
|Fuel Cell Products andServices           |  | 2016                            |        | 2015 |   | $ Change |  |   | % Change |  
|Heavy-Duty
Motive                        |  | $                               | 10,994 |      | $ | 4,068    |  | $ | 6,926    |   | 
|Portable Power                           |  |                                 | 2,905  |      |   | 3,398    |  |   | (493     | ) | 
|Material
Handling                        |  |                                 | 2,985  |      |   | 4,054    |  |   | (1,069   | ) | 
|Backup Power                             |  |                                 | 2,118  |      |   | 1,622    |  |   | 496      |   | 
|Technology Solutions                     |  |                                 | 11,682 |      |   | 6,844    |  |   | 4,838    |   | 
|Revenues                                 |  |                                 | 30,684 |      |   | 19,986   |  |   | 10,698   |   | 
|Cost of goods sold                       |  |                                 | 21,338 |      |   | 16,168   |  |   | 5,170    |   | 
|Gross Margin                             |  | $                               | 9,346  |      | $ | 3,818    |  | $ | 5,528    |   | 
|Gross Margin %                           |  |                                 | 30%    |      |   | 19%      |  |   | n/a      |   | 

Fuel Cell Products and Services
Revenues of $30.7 million for the fourth quarter of 2016 increased 54%, or $10.7
million, compared to the fourth quarter of 2015. The 54% increase was driven by
higher Heavy-Duty Motive, Technology Solutions and Backup Power revenues, which
more than offset a decline in Material Handling and Portable Power
revenues.

Technology Solutions revenues of $11.7
million increased $4.8 million, or 71%, due primarily to initial amounts earned
in the fourth quarter of 2016 related to the establishment by Synergy JVCo of a
production line in Yunfu, China for the manufacture and assembly of
FCvelocity®-9SSL fuel cell stacks, by amounts earned in 2016 to enable Synergy
Group to exclusively manufacture and sell Ballard's direct hydrogen FCgen®-H2PM
fuel cell backup power systems in China, combined with a minor increase in
Volkswagen service revenues primarily as a result of program scope and timing
requirements. Engineering services and licensing work performed in the fourth
quarter of 2016 on the TRC and CRRC Sifang tram projects, the HDF distributed
generation project, and other programs were relatively consistent with amounts
earned in the fourth quarter of 2015 on the Nantong Zehe and other
programs.

Heavy-Duty Motive revenues of $11.0
million increased $6.9 million, or 170%, due primarily to significantly higher
shipments in the fourth quarter of 2016 of FCvelocityTM-9SSL fuel cell stacks,
FCveloCity®-MD 30-kilowatt fuel cell modules and FCveloCity®-HD7 85-kilowatt
fuel cell modules primarily to the Synergy Group in China.

Material Handling revenues of $3.0
million decreased ($1.1) million, or (26%), primarily as a result of lower stack
shipments to Plug Power combined with a lower average selling price due to
product mix.

Page 13 of 53

---





Portable Power revenues of $2.9 million
decreased ($0.5) million, or (15%), due to lower revenues generated by Protonex
as a result of lower service revenues as product shipments were relatively flat. Revenues in each of the quarters were
primarily driven by product shipments of Squad Power Manager (SPM-622) Special
Operations Kits for end customer U.S. Special Operations Command under the Nett
Warrior program.

Backup Power revenues of $2.1 million
increased $0.5 million, or 31%, due primarily to an increase in shipments of
hydrogen-based backup power stacks to CHEM, combined with the completion in the
fourth quarter of 2016 of a final sale of methanol-based backup power systems
initiated prior to the CHEM Transaction. During the second quarter of 2016, we
sold certain of our methanol Telecom Backup Power assets to CHEM in the CHEM
Transaction.

Fuel Cell Products and Services gross
margins improved to $9.3 million, or 30% of revenues, for the fourth quarter of
2016, compared to $3.8 million, or 19% of revenues, for the fourth quarter of
2015. The improvement in gross margin of $5.5 million, or 145%, was driven by
the 54% increase in total revenues combined with a shift to higher margin
product and service revenue resulting in an 11 point improvement in gross margin
as a percent of revenues. Gross margin in the fourth quarter of 2016
particularly benefited from the increase in higher margin Technology Solutions
and Heavy-Duty Motive revenues, combined with improved manufacturing overhead
and related cost absorption as a result of improved scale and efficiency driven
by the 54% increase in total revenues.

|Cash Operating Costs                      |  |                                 |       |      |   |          |  |   |                |   |  |      |  
|----------------------------------------- |  | ------------------------------- | ----- | ---- | - | -------- |  | - | -------------- | - |  | ---- | -
|(Expressed in thousands of U.S. dollars)  |  | Three months ended December 31,
|                                          |  | 2016                            |       | 2015 |   | $ Change |  |   | %
      Change |  
|Research and
    Product                  |  |                                 |       |      |   |          |  |   |                |   |  |      |  
|Development
      (cash operating cost)   |  | $                               | 3,544 |      | $ | 3,065    |  | $ | 479            |   |  | 16%  |  
|General and Administrative                |  |                                 |       |      |   |          |  |   |                |   |  |      |  
|(cash operating
      cost)               |  |                                 | 2,929 |      |   | 2,806    |  |   | 123            |   |  | 4%   |  
|Sales and Marketing (cash
      operating |  |                                 |       |      |   |          |  |   |                |   |  |      |  
|cost)                                     |  |                                 | 1,667 |      |   | 1,858    |  |   | (191           | ) |  | (10% | )
|Cash Operating Costs                      |  | $                               | 8,140 |      | $ | 7,729    |  | $ | 411            |   |  | 5%   |  

Cash Operating Costs and its
components of Research and Product Development (operating cost), General and
Administrative (operating cost), and Sales and Marketing (operating cost) are
non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our
financial performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies. See the reconciliation of Cash Operating
Costs to GAAP in the Supplemental Non-GAAP Measures section and the
reconciliation of Research and Product Development (operating cost), General and
Administrative (operating cost), and Sales and Marketing (operating cost) to
GAAP in the Operating Expense section. Cash Operating Costs adjusts operating
expenses for stock-based compensation expense, depreciation and amortization,
impairment losses on trade receivables, restructuring charges, acquisition costs
and financing charges.


Cash Operating Costs (see Supplemental
Non-GAAP Measures) for the fourth quarter of 2016 were $8.1 million, an increase
of $0.4 million, or 5%, compared to the fourth quarter of 2015. The $0.4
million, or 5%, increase was driven by the increase in cash research and product
development operating costs of $0.5 million as slightly higher cash general and
administrative operating costs were more than offset by lower cash sales and
marketing operating costs.

Page 14 of 53

---





The overall increase in cash operating
costs in the fourth quarter of 2016 was driven by higher engineering and
prototyping expenses related to product development and the ongoing improvement
of all of our fuel cell products, an increase in Protonex research and product
development efforts, and by higher labour costs as a result of increased bonus
accrual expenses in 2016 as compared to 2015. These cost increases were
partially offset by the benefit of cost reductions as a result of the Companys
rationalization initiatives undertaken in the first quarter of 2016 which were
primarily focused on reducing our operating cost base associated with methanol
Telecom Backup Power activities including significant reductions in engineering,
sales and marketing efforts associated with this market.

|Adjusted EBITDA                                |  |                                 |       |      |   |        |          |  |                |       |  |     
|---------------------------------------------- |  | ------------------------------- | ----- | ---- | - | ------ | -------- |  | -------------- | ----- |  | ----
|(Expressed in
      thousands of U.S. dollars) |  | Three months ended December 31,
|                                               |  | 2016                            |       | 2015 |   |        | $ Change |  | %
      Change
|Adjusted EBITDA                                |  | **$**                           | 1,763 |      | $ | (2,936 | )        |  | $              | 4,699 |  | 160%

EBITDA and  Adjusted EBITDA
are non-GAAP measures. We use certain Non-GAAP measures to assist in assessing
our financial performance. Non-GAAP measures do not have any standardized
meaning prescribed by GAAP and are therefore unlikely to be comparable to
similar measures presented by other companies. See reconciliation to GAAP in the
Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for
stock-based compensation expense, transactional gains and losses, finance and
other income, and acquisition costs.


Adjusted EBITDA (see Supplemental
Non-GAAP Measures) for the fourth quarter of 2016 was $1.8 million, compared to
($2.9) million for the fourth quarter of 2015. The $4.7 million increase in
Adjusted EBITDA in the fourth quarter of 2016 was driven by the $5.5 million
increase in gross margin as a result of the 54% increase in overall revenues
combined with the 11 point improvement in gross margin as a percent of revenues.
This improvement was partially offset by the increase in Cash Operating Costs of
($0.4) million primarily as a result of higher research and product development
expense and by lower restructuring expenses of ($0.2) million.

|Net income (loss)
      attributable to Ballard |  |                                 |        |   |      |   |        |          |  |               
|----------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -------- |  | --------------
|(Expressed in
      thousands of U.S. dollars)  |  | Three months ended December 31,
|                                                |  | 2016                            |        |   | 2015 |   |        | $ Change |  | %
      Change
|Net income (loss) attributable to Ballard       |  | **$**                           | (1,121 | ) |      | $ | (1,355 | )        |  | $             
|from continuing operations                      |  |                                 |        |   |      |   |        |          |  |               

Net loss attributable to Ballard from
continuing operations for the fourth quarter of 2016 was ($1.1) million, or
($0.01) per share, compared to a net loss of ($1.4) million, or ($0.01) per
share, in the fourth quarter of 2015. The $0.2 million decrease in net loss in
the fourth quarter of 2016 was driven by the improvement in Adjusted EBITDA loss
of $4.7 million, and by lower acquisition costs of $0.9 million which were
incurred for the Protonex acquisition in the fourth quarter of 2015. These
fourth quarter of 2016 positive impacts were partially offset by a reduction in
gain on sale of intellectual property of ($5.4) million as we recognized a
significant gain of $5.4 million in the fourth quarter of 2015 on the closing of
the second and final tranche of the Volkswagen IP Agreement.

As noted above, net loss attributable
to Ballard in the fourth quarter of 2015 was positively impacted by the gain on
sale of intellectual property of $5.4 million, and negatively impacted by
acquisition costs of ($0.9) million. Excluding the impact of the gain on sale of
intellectual property and the impact from acquisition costs, Adjusted Net Loss
(see Supplemental Non-GAAP Measures) in the fourth quarter of 2015 was ($5.9)
million, or ($0.04) per share.

Page 15 of 53

---





Net loss attributable to Ballard from
continuing operations excludes the net loss attributed to the interests of the
non-controlling shareholder in the losses of Ballard Power Systems Europe A/S
(formerly named Dantherm Power A/S) related to its 43% equity interest in
Ballard Power Systems Europe A/S. Net income attributed to
non-controllinginterests for the fourth quarter of 2016 was $0.2 million,
compared to $0.1 million for the fourth quarter of 2015.

|Cash provided by (used in)
      operating activities |  |                                           |       |      |       |        
|----------------------------------------------------- |  | ----------------------------------------- | ----- | ---- | ----- | -------
|(Expressed in
      thousands of U.S. dollars)        |  | Three months ended
      December
    31,
|                                                      |  | 2016                                      |       | 2015 |       |        
|Cash provided by (used in) operating                  |  | $                                         | 7,983 |      | $**** | (10,566
|activities                                            |  |                                           |       |      |       |        

Cash provided by (used in) operating
activities in the fourth quarter of 2016 was $8.0 million, consisting of cash
operating income of $1.1 million, combined with net working capital inflows of
$6.9 million. Cash used by operating activities in the fourth quarter of 2015
was ($10.6) million, consisting of cash operating losses of ($4.7) million and
net working capital outflows of ($5.9) million. The $18.5 million reduction in
cash used by operating activities in the fourth quarter of 2016, as compared to
the fourth quarter of 2015, was driven by the relative improvement in cash
operating losses of $5.8 million, combined with the relative reduction in
working capital requirements of $12.8 million. The $5.8 million decline in cash
operating losses in the fourth quarter of 2016 was due primarily to the $4.7
million reduction in Adjusted EBITDA loss, combined with lower acquisition costs
of $0.9 million which were incurred for the Protonex acquisition in the fourth
quarter of 2015.

The total change in working capital of
$6.9 million in the fourth quarter of 2016 was driven by lower inventory of $6.5
million as we delivered expected Heavy-Duty Motive shipments to customers in the
last quarter of 2016, and by higher deferred revenue of $3.9 million as we
collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed. These fourth quarter of 2016 working
capital inflows were partially offset by lower accounts payable and accrued
liabilities of ($1.7) million due primarily to the timing of purchases and
supplier payments, and by lower accrued warranty obligations of ($1.5) million
due primarily to customer service related expenses incurred in our Material
Handling market and by Backup Power warranty contract expirations.

This compares to a total change in
working capital of ($5.9) million in the fourth quarter of 2015 which was driven
by higher accounts receivable of ($2.2) million primarily as a result of the
timing of Portable Power and Heavy-Duty Motive revenues and the related customer
collections, by lower accounts payable and accrued liabilities of ($1.8) million
due primarily to the timing of purchases and supplier payments including the
payment of acquisition and transaction related costs incurred on the Protonex
acquisition, and by lower deferred revenue of ($1.5) million as we completed the
contract work on certain Technology Solutions, Heavy-Duty Motive and government
grant contracts for which we received prepayments in an earlier
period.

Page 16 of
53

---





RESULTS OF OPERATIONS  Year ended
December 31, 2016

|Revenue and gross
      margin           |  |                         |        |      |       |          |  |       |                |   | 
|---------------------------------------- |  | ----------------------- | ------ | ---- | ----- | -------- |  | ----- | -------------- | - | 
|(Expressed in thousands of U.S. dollars) |  | Year ended December 31,
|Fuel Cell Products andServices           |  | 2016                    |        | 2015 |       | $ Change |  |       | %
      Change |  
|Heavy-Duty
Motive                        |  | $                       | 26,480 |      | $**** | 11,953   |  | $**** | 14,527         |   | 
|Portable Power                           |  |                         | 11,420 |      |       | 3,398    |  |       | 8,022          |   | 
|Material
Handling                        |  |                         | 12,911 |      |       | 12,710   |  |       | 201            |   | 
|Backup Power                             |  |                         | 4,821  |      |       | 5,737    |  |       | (916           | ) | 
|Technology Solutions                     |  |                         | 29,638 |      |       | 22,665   |  |       | 6,973          |   | 
|Revenues                                 |  |                         | 85,270 |      |       | 56,463   |  |       | 28,807         |   | 
|Cost of goods sold                       |  |                         | 61,086 |      |       | 46,489   |  |       | 14,597         |   | 
|Gross Margin                             |  | $                       | 24,184 |      | $     | 9,974    |  | $     | 14,210         |   | 
|Gross Margin %                           |  |                         | 28%    |      |       | 18%      |  |       | n/a            |   | 

Fuel Cell Products and Services
Revenues of $85.3 million in 2016 increased 51%, or $28.8 million, compared to
2015. The 51% increase was driven by higher Heavy-Duty Motive, Technology
Solutions and Material Handling revenues combined with the addition of Portable
Power revenues, which more than offset a decline in Backup Power
revenues.

Technology Solutions revenues of $29.6
million increased $7.0 million, or 31%, due primarily to initial amounts earned
starting in the fourth quarter of 2016 related to the establishment by Synergy
JVCo of a production line in Yunfu, China for the manufacture and assembly of
FCvelocity®-9SSL fuel cell stacks, by amounts earned in 2016 to enable Synergy
Group to exclusively manufacture and sell Ballard's direct hydrogen FCgen®-H2PM
fuel cell backup power systems in China, and by amounts earned on the TRC and
CRRC Sifang tram projects and the HDF distributed generation project, which
exceeded amounts earned in 2015 on the Nantong Zehe and other programs. These
increases more than offset a minor decline in Volkswagen service revenues which
were negatively impacted by approximately ($0.5) million in 2016, as compared to
2015, as a result of an approximate (4%) lower Canadian dollar, relative to the
U.S. dollar, as the Volkswagen Agreement is priced in Canadian dollars. The
underlying costs to satisfy the Volkswagen Agreement are primarily denominated
in Canadian dollars.

Heavy-Duty Motive revenues of $26.5
million increased $14.5 million, or 122%, due primarily to significantly higher
shipments in 2016 of FCvelocityTM-9SSL fuel cell stacks, FCveloCity®-MD
30-kilowatt fuel cell modules and FCveloCity®-HD7 85-kilowatt fuel cell modules
and ready-to-assemble module kits primarily to the Synergy Group in China,
combined with an increase in shipments of FCvelocity®-HD6 bus power modules to
customers primarily in North America.

Material Handling revenues of $12.9
million increased $0.2 million, or 2%, primarily as a result of higher stack
shipments to Plug Power, partially offset by a lower average selling price due
to product mix.

Portable Power revenues of $11.4
million increased $8.0 million, or 236%, due to a full year of revenues
generated by Protonex, a company we acquired on October 1, 2015. Revenues from
Protonex were primarily driven by product shipments of Squad Power Manager
(SPM-622) Special Operations Kits for end customer U.S. Special Operations
Command under the Nett Warrior program, and by service revenues earned on a
variety of contracts.

Page 17 of
53

---





Backup Power revenues of $4.8 million
decreased ($0.9) million, or (16%), due primarily to a decline in shipments of
methanol-based backup power systems as we continued to review strategic
alternatives for our methanol Telecom Backup Power business during 2016,
ultimately resulting in the CHEM Transaction which closed in the second quarter
of 2016. This decrease more than offset revenue increases as a result of
slightly higher shipments of hydrogen-based backup power systems and stacks for
backup power applications.

Fuel Cell Products and Services gross
margins improved to $24.2 million, or 28% of revenues, for 2016, compared to
$10.0 million, or 18% of revenues, for 2015. The improvement in gross margin of
$14.2 million, or 142%, was driven by the 51% increase in overall revenues
combined with a shift to higher margin product and services revenue resulting in
a 10 point improvement in gross margin as a percent of revenues. Gross margin in
2016 benefited from the addition of higher margin Portable Power shipments and
services as a result of the acquisition of Protonex on October 1, 2015, by the
increase in higher margin Heavy-Duty Motive and Technology Solutions revenues,
and by improved manufacturing overhead and related cost absorption as a result
of improved scale and efficiency driven by the 51% increase in total
revenues.

Gross margin in 2016 was also
negatively impacted by inventory impairments of ($0.9) million related primarily
to excess and obsolete inventory, and benefited from positive net warranty
adjustments of $0.5 million related primarily to backup power and fuel cell bus
contractual warranty expirations. Gross margin in 2015 was negatively impacted
by inventory impairments of ($1.1) million related primarily to excess bus
inventory as we transitioned from FCvelocity®-HD6 bus products to
FCvelocity®-HD7 bus products, and benefited from positive net warranty
adjustments of $1.3 million related primarily to fuel cell bus contractual
warranty expirations and reduced product costs.

|Cash Operating Costs                      |  |                         |        |      |   |          |  |                |       |  |    
|----------------------------------------- |  | ----------------------- | ------ | ---- | - | -------- |  | -------------- | ----- |  | ---
|(Expressed in thousands of U.S. dollars)  |  | Year ended December 31,
|                                          |  | 2016                    |        | 2015 |   | $ Change |  | %
      Change
|Research and
    Product                  |  |                         |        |      |   |          |  |                |       |  |    
|Development
      (cash operating cost)   |  | $                       | 16,546 |      | $ | 13,301   |  | $              | 3,245 |  | 24%
|General and Administrative                |  |                         |        |      |   |          |  |                |       |  |    
|(cash operating
      cost)               |  |                         | 10,897 |      |   | 9,022    |  |                | 1,875 |  | 21%
|Sales and Marketing (cash
      operating |  |                         |        |      |   |          |  |                |       |  |    
|cost)                                     |  |                         | 6,895  |      |   | 6,727    |  |                | 168   |  | 2% 
|Cash Operating Costs                      |  | $                       | 34,338 |      | $ | 29,050   |  | $              | 5,286 |  | 18%

Cash Operating Costs and its
components of Research and Product Development (operating cost), General and
Administrative (operating cost), and Sales and Marketing (operating cost) are
non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our
financial performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies. See the reconciliation of Cash Operating
Costs to GAAP in the Supplemental Non-GAAP Measures section and the
reconciliation of Research and Product Development (operating cost), General and
Administrative (operating cost), and Sales and Marketing (operating cost) to
GAAP in the Operating Expense section. Cash Operating Costs adjusts operating
expenses for stock-based compensation expense, depreciation and amortization,
impairment losses on trade receivables, restructuring charges, acquisition costs
and financing charges.


Cash Operating Costs (see Supplemental
Non-GAAP Measures) in 2016 were $34.3 million, an increase of $5.3 million, or
18%, compared to 2015. The $5.3 million, or 18%, increase was driven by higher
cash research and product development operating costs of $3.2 million, higher
cash general and administrative operating costs of $1.9 million, and higher cash
sales and marketing operating costs of $0.2 million.

Page 18 of 53

---





The overall increase in cash operating
costs in 2016 was driven primarily by the acquisition of Protonex on October 1,
2015, which contributed $7.6 million of Cash Operating Costs in 2016 as compared
to $1.5 in the fourth quarter of 2015. In addition, we incurred higher
engineering and prototyping expenses related to product development and the
ongoing improvement of all of our fuel cell products, and higher labour costs as
a result of increased bonus accrual expenses in 2016 as compared to 2015. These
cost increases were offset by the benefit of cost reductions as a result of the
Companys rationalization and renewal initiatives undertaken in the first
quarter of 2016 which were primarily focused on reducing our operating cost base
associated with methanol Telecom Backup Power activities including significant
reductions in engineering, sales and marketing efforts associated with this
market. In addition, operating expenses benefited from lower labour costs in
Canada as a result of an approximate (4%) lower Canadian dollar, relative to the
U.S. dollar, and the resulting positive impact on our Canadian operating cost
base.

As noted above, operating costs in 2016
benefited from the positive impact of a weaker Canadian dollar, relative to the
U.S. dollar. As a significant amount of our net operating costs (primarily
labour) are denominated in Canadian dollars, operating expenses and Adjusted
EBITDA are impacted by changes in the Canadian dollar relative to the U.S.
dollar. As the Canadian dollar relative to the U.S. dollar was approximately
(4%), or (5) basis points, lower in 2016 as compared to 2015, positive foreign
exchange impacts on our Canadian operating cost base and Adjusted EBITDA were
approximately $1.8 million. A $0.01 decrease in the Canadian dollar, relative to
the U.S. dollar, positively impacts annual Cash Operating Costs and Adjusted
EBITDA by approximately $0.3 million to $0.4 million.

|Adjusted EBITDA                                |  |                         |        |   |      |   |         |                |  |          |       |  |    
|---------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------- | -------------- |  | -------- | ----- |  | ---
|(Expressed in thousands of U.S.
      dollars) |  | Year ended December 31,
|                                               |  | 2016                    |        |   | 2015 |   |         | $
      Change |  | % Change
|Adjusted EBITDA                                |  | **$**                   | (9,883 | ) |      | $ | (15,259 | )              |  | $        | 5,376 |  | 35%

EBITDA and  Adjusted EBITDA
are non-GAAP measures. We use certain Non-GAAP measures to assist in assessing
our financial performance. Non-GAAP measures do not have any standardized
meaning prescribed by GAAP and are therefore unlikely to be comparable to
similar measures presented by other companies. See reconciliation to GAAP in the
Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for
stock-based compensation expense, transactional gains and losses, finance and
other income, and acquisition costs.


Adjusted EBITDA (see Supplemental
Non-GAAP Measures) for 2016 was ($9.9) million, compared to ($15.3) million for
2015. The $5.4 million reduction in Adjusted EBITDA loss in 2016 was driven by
the $14.2 million increase in gross margin as a result of the 51% increase in
overall revenues combined with the 10 point improvement in gross margin as a
percent of revenues. This improvement was partially offset by the increase in
Cash Operating Costs of ($5.3) million primarily as a result of the acquisition
of Protonex and the assumption of a full year of operating costs in 2016 as
compared to three months in 2015, by higher restructuring expenses of ($2.3)
million incurred as a result of the Companys rationalization and renewal
initiatives undertaken in the first quarter of 2016 which were primarily focused
on reducing our operating cost base associated with methanol Telecom Backup
Power activities, and by lower recoveries on impairment losses on trade
receivables of ($1.0) million.

Page 19 of 53

---





|Net income (loss)
      attributable to Ballard |  |                               |         |   |      |   |        |          |  |   |                |  
|----------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------ | -------- |  | - | -------------- | -
|(Expressed in
      thousands of U.S. dollars)  |  | Year ended December
      31,
|                                                |  | 2016                          |         |   | 2015 |   |        | $ Change |  |   | %
      Change |  
|Net income (loss) attributable to Ballard       |  | $                             | (21,112 | ) |      | $ | (5,815 | )        |  | $ | (15,297        | )
|from continuing operations                      |  |                               |         |   |      |   |        |          |  |   |                |  

Net loss attributable to Ballard from
continuing operations for 2016 was ($21.1) million, or ($0.13) per share,
compared to a net loss of ($5.8) million, or ($0.04) per share, in 2015. The
($15.3) million increase in net loss in 2016 was driven by the reduction in gain
on sale of intellectual property of ($19.6) million as we recognized a
significant gain of $14.2 million in the first quarter of 2015 on the closing of
the initial tranche of the Volkswagen IP Agreement and an additional gain of
$5.4 million in the fourth quarter of 2015 on the closing of the second and
final tranche of the Volkswagen IP Agreement. Net loss in 2016 was also
negatively impacted by an increase in impairment losses of ($1.2) million as we
wrote-down certain methanol Telecom Backup Power assets in the first quarter of
2016 while we continued to review strategic alternatives for our methanol
Telecom Backup Power assets prior to concluding the transaction with CHEM in the
second quarter of 2016, and by an additional loss on sale of assets of ($0.6)
million recognized in relation to the CHEM transaction. These 2016 net loss
negative impacts were partially offset by the improvement in Adjusted EBITDA
loss of $5.4 million and by lower acquisition costs of $1.5 million which were
incurred for the Protonex acquisition in 2015.

As noted above, net loss attributable
to Ballard in 2016 was negatively impacted by the above noted impairment loss of
($1.2) million related to a write-down of methanol Telecom Backup Power
intangible assets and property, plant and equipment, negatively impacted by a
loss on sale of assets of ($0.6) million recognized on the CHEM transaction. Net
income attributable to Ballard in 2015 was positively impacted by the above
noted gains on sale of intellectual property under the Volkswagen IP Agreement
of $19.6 million, positively impacted by net impairment recoveries on trade
receivables of $0.9 million, and negatively impacted by acquisition costs
related to the Protonex acquisition of ($1.5) million. Excluding the impact of
the gain on sale of intellectual property and the impact from acquisition costs,
impairment recoveries on trade receivables, asset impairment charges, and
transactional gains and losses on intangible assets and property, plant and
equipment, Adjusted Net Loss (see Supplemental Non-GAAP Measures) in 2016 was
($19.3) million, or ($0.12) per share, compared to ($24.8) million, or ($0.18)
per share, for 2015.

Net loss attributable to Ballard from
continuing operations excludes the net loss attributed to the interests of the
non-controlling shareholder in the losses of Ballard Power Systems Europe A/S
(formerly named Dantherm Power A/S) related to its 43% equity interest in
Ballard Power Systems Europe A/S. Net loss attributed to
non-controllinginterests for 2016 was ($0.6) million, compared to ($0.8)
million for 2015.

Page 20 of 53

---





|Cash used in operating activities       
|----------------------------------------
|(Expressed in thousands of U.S. dollars)
|                                        
|Cash (used in) provided by operating    
|activities                              

Cash used in operating activities in
2016 was ($3.9) million, consisting of cash operating losses of ($12.4) million,
partially offset by net working capital inflows of $8.5 million. Cash used in
operating activities in 2015 was ($25.4) million, consisting of cash operating
losses of ($19.3) million and net working capital outflows of ($6.0) million.
The $21.5 million reduction in cash used by operating activities in 2016, as
compared to 2015, was driven by the relative improvement in cash operating
losses of $6.9 million, combined with the relative reduction in working capital
changes of $14.6 million. The $6.9 million decline in cash operating losses in
2016 was due primarily to the $5.4 million reduction in Adjusted EBITDA loss,
combined with lower acquisition costs of $1.5 million which were incurred for
the Protonex acquisition in 2015.

The total change in working capital of
$8.5 million in 2016 was driven by higher deferred revenue of $14.5 million as
we collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed, and by higher accounts payable and
accrued liabilities of $1.0 million due primarily to restructuring and wage
accrual expenses which will be paid into 2017. These 2016 working capital
inflows were partially offset by higher inventory of ($2.3) million primarily to
support expected Heavy-Duty Motive shipments to customers in the first quarter
of 2017, by lower accrued warranty obligations of ($2.6) million due primarily
to customer service related expenses incurred in our Material Handling market
and by Backup Power warranty contract expirations, by higher prepaid expenses of
($1.3) million primarily related to withholding taxes incurred on certain
Chinese transactions, and by higher accounts receivable of ($0.8) million
primarily as a result of the timing of Material Handling, Technology Solutions
and Portable Power revenues and the related customer collections.

This compares to a total change in
working capital of ($6.0) million in 2015 which was driven by higher inventory
of ($5.6) million primarily to support expected Heavy-Duty Motive and Portable
Power product shipments in the first quarter of 2016, by lower accrued warranty
obligations of ($3.6) million due primarily to customer service related expenses
incurred in our Backup Power market in Asia and by Heavy-Duty Motive warranty
contract expirations, and by lower accounts payable and accrued liabilities of
($1.3) million due primarily to the timing of purchases and supplier payments.
These 2015 working capital outflows were partially offset by higher deferred
revenue of $4.0 million as we collected prepayments on certain Heavy-Duty Motive
and Technology Solutions contracts in advance of work performed.

Page 21 of
53

---





OPERATING EXPENSES AND OTHER
ITEMS

|Research and product development
    expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Expressed in
      thousands of U.S. dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Research and product development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Research and product
      development expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Less: Depreciation and amortization
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Less: Stock-based compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Research and Product Development
    (cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|operating cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(Expressed in
      thousands of U.S. dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Research and product development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Research and product
      development expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Less: Depreciation and amortization
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Less: Stock-based compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Research and Product Development
    (cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|operating cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Research and Product Development
      (operating cost) is a non-GAAP measure. We use certain Non-GAAP measures
      to assist in assessing our financial performance. Non-GAAP measures do not
      have any standardized meaning prescribed by GAAP and are therefore
      unlikely to be comparable to similar measures presented by other
      companies. Research and Product Development (operating cost) adjusts
      Research and product development expense for depreciation and amortization
      expense and stock-based compensation expense. See the reconciliation of
      the adjustments to Research and product development expense in the
      Non-GAAP Measures section.

Research and product development
expenses for the three months ended December 31, 2016were $4.3 million, an increase of $0.9 million, or 25%,
compared to the corresponding period of 2015. Excluding depreciation and
amortization expense of ($0.5) million and ($0.3) million, respectively, and
excluding stock-based compensation expense of ($0.3) million and ($0.1) million,
respectively, in each of the periods, cash research and product development
operating costs (see Supplemental Non-GAAP Measures) were $3.5 million in the
fourth quarter of 2016, an increase of $0.5 million, or 16%, compared to the
fourth quarter of 2015.

The $0.5 million, or 16%, increase in
cash research and development operating costs (see Supplemental Non-GAAP
Measures) in the fourth quarter of 2016 was driven primarily by higher
engineering and prototyping expenses related to product development and the
ongoing improvement of all of our fuel cell products, an increase in Protonex
research and product development efforts, and by higher labour costs as a result
of increased bonus accrual expenses in 2016 as compared to 2015. These cost
increases were partially offset by lower methanol Telecom Backup Power
engineering expenses due to cost reduction initiatives undertaken in the first
quarter of 2016 and culminating with the CHEM Transaction.

Research and product development
expenses for the year ended December 31, 2016were $19.8 million, an increase of $3.6 million, or 22%, compared to the
corresponding period of 2015. Excluding depreciation and amortization expense of
($2.2) million and ($1.9) million, respectively, in each of the periods, and
excluding stock-based compensation expense of ($1.1) million in each of the
periods, cash research and product development operating costs (see Supplemental
Non-GAAP Measures) were $16.5 million in 2016, an increase of $3.2 million, or
24%, compared to 2015.

Page 22 of
53

---





The $3.2 million, or 24%, increase in
cash research and development operating costs (see Supplemental Non-GAAP
Measures) in 2016 was driven primarily by the acquisition of Protonex on October
1, 2015, which contributed $4.7 million of research and product development
operating expense in 2016 as compared to $0.7 million in 2015. In addition, we
incurred higher engineering and prototyping expenses in 2016 related to product
development and the ongoing improvement of all of our fuel cell products, and
higher labour costs as a result of increased bonus accrual expenses in 2016 as
compared to 2015. These cost pressures in 2016 were offset by lower methanol
Telecom Backup Power engineering expenses due to cost reduction initiatives
undertaken in the first quarter of 2016 culminating with the CHEM Transaction,
and by lower labour costs in Canada as a result of an approximate (4%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base. In addition, FCvelocity®-HD7 development
costs of $1.1 million and $1.4 million, respectively, were capitalized during
2016 and 2015 as fuel cell technology intangible assets for the now completed
FCvelocity®-HD7 development program.

Government funding recoveries were
relatively consistent in 2016 as compared to 2015 as slightly lower government
funding recoveries in Denmark by Ballard Power Systems Europe A/S (formerly
Dantherm Power A/S), were offset by slightly higher government funding
recoveries in Canada. During 2016, we successfully completed the 5-year, $7.2
million Canadian, award agreement from Sustainable Development Technology Canada
(SDTC) to assist us with extending the operating life and lowering the product
cost of FCgen-1300 fuel cell stack and demonstrating the technology in the
Ballards CLEARgen distributed generation system at the Toyota Motor Sales
U.S.A., Inc. sales and marketing headquarters campus in Torrance,
California.

Government research funding and
development costs capitalized as fuel cell technology intangible assets are
reflected as cost offsets to research and product development expenses, whereas
labour and material costs incurred on revenue producing engineering services
projects are reallocated from research and product development expenses to cost
of goods sold.

Depreciation and amortization
expense included in research and product development expense for the three
months and year ended December 31, 2016was
$0.5 million and $2.2 million, as compared to $0.3 million and $1.9 million,
respectively, for the corresponding periods of 2015. Depreciation and
amortization expense relates primarily to amortization expense on our intangible
assets and depreciation expense on our research and product development
equipment. Increases in depreciation and amortization expense in 2016 primarily
as a result of the acquisition of Protonex on October 1, 2015 and the resulting
amortization of acquired intangible assets over their estimated useful lives of
15 to 20 years, were partially offset by declines in amortization expense in
2016 as a result of the write-down of our remaining methanol Telecom Backup
Power intangible assets and property, plant and equipment in the first quarter
of 2016.

Stock-based compensation expense
included in research and product development expense for the three months and
year ended December 31, 2016was $0.3 million
and $1.1 million, respectively, compared to $0.1 million and $1.0 million the
corresponding periods of 2015.

Page 23 of
53

---





|General and administrative
expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                    
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------
|(Expressed in thousands of U.S.
      dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Three months ended December
    31,
|General and
      administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 2016                               
|General and administrative expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $                                  
|Less:
      Depreciation and amortization expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $                                  
|Less: Stock-based compensation
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $                                  
|General and
      Administrative (cash operating                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $                                  
|cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(Expressed in
      thousands of U.S. dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Year ended December 31,            
|General and
      administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 2016                               
|General and administrative expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $                                  
|Less:
      Depreciation and amortization expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $                                  
|Less: Stock-based compensation
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $                                  
|General and
      Administrative (cash operating                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | $                                  
|cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                    
|General and Administrative
      (operating cost) is a non-GAAP measure. We use certain Non-GAAP measures
      to assist in assessing our financial performance. Non-GAAP measures do not
      have any standardized meaning prescribed by GAAP and are therefore
      unlikely to be comparable to similar measures presented by other
      companies. General and Administrative (operating cost) adjusts General and
      administrative expense for depreciation and amortization expense and
      stock-based compensation expense. See the reconciliation of the
      adjustments to General and administrative expense in the Non-GAAP Measures
      section.

General and administrative
expenses for the three months ended December 31, 2016were $3.5 million, an increase of $0.5 million, or 16%,
compared to the corresponding period of 2015. Excluding depreciation and
amortization expense of ($0.1) million in each of the periods, and excluding
stock-based compensation expense of ($0.5) million and ($0.1) million,
respectively, in each of the periods, cash general and administrative operating
costs (see Supplemental Non-GAAP Measures) were $2.9 million in the fourth
quarter of 2016, an increase of $0.1 million, or 4%, compared to the fourth
quarter of 2015.

The $0.1 million, or 4%, increase in
cash general and administrative operating costs (see Supplemental Non-GAAP
Measures) in the fourth quarter of 2016 was driven primarily by higher labour
costs as a result of increased bonus accrual expenses in 2016 as compared to
2015, partially offset by lower legal and advisory costs due to the timing of
transactional contracting.

General and administrative
expenses for the year ended December 31, 2016were $12.9 million, an increase of $2.3 million, or 22%, compared to the
corresponding period of 2015. Excluding depreciation and amortization expense of
($0.4) million and ($0.3) million, respectively, and excluding stock-based
compensation expense of ($1.7) million and ($1.3) million, respectively, in each
of the periods, cash general and administrative operating costs (see
Supplemental Non-GAAP Measures) were $10.9 million in 2016, an increase of $1.9
million, or 21%, compared to 2015.

The $1.9 million, or 21%, increase in
cash general and administrative operating costs (see Supplemental Non-GAAP
Measures) in 2016 was driven primarily by the acquisition of Protonex on October
1, 2015, which contributed $1.6 million of general and administrative operating
expense in 2016 as compared to $0.6 million in 2015, combined with higher labour
costs as a result of increased bonus accrual expenses in 2016 as compared to
2015. These cost increases in 2016 were partially offset by lower labour costs
in Canada as a result of an approximate (4%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact
on our Canadian operating cost base.

Page 24 of
53

---





Depreciation and amortization
expense included in general and administrative expensefor thethree months and
year ended December 31, 2016was $0.1 million
and $0.4 million, respectively, compared to $0.1 million and $0.3 million,
respectively, for the corresponding periods of 2015, and relates primarily to
depreciation expense on our office and information technology equipment.

Stock-based compensation expense
included in general and administrative expense for thethree months and year ended
December 31, 2016was $0.5 million and $1.7
million, respectively, compared to $0.1 million and $1.3 million, respectively,
for the corresponding periods of 2015. The increase in 2016 is primarily as a
result of a downward adjustment to accrued stock-based compensation expense made
in the fourth quarter of 2015 as certain outstanding restricted share units
failed to meet the vesting criteria.

|Sales and marketing expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Expressed in
      thousands of U.S. dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Sales and marketing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Sales and marketing
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Less: Depreciation and amortization
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Less: Stock-based
      compensation (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|recovery                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Sales and Marketing (cash operating cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(Expressed in
      thousands of U.S. dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Sales and marketing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Sales and marketing
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Less: Depreciation and amortization
      expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Less: Stock-based compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Sales and Marketing (cash operating cost)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Sales and Marketing (operating
      cost) is a non-GAAP measure. We use certain Non-GAAP measures to assist in
      assessing our financial performance. Non-GAAP measures do not have any
      standardized meaning prescribed by GAAP and are therefore unlikely to be
      comparable to similar measures presented by other companies. Sales and
      Marketing (operating cost) adjusts Sales and marketing expense for
      depreciation and amortization expense and stock-based compensation
      expense. See the reconciliation of the adjustments to Sales and marketing
      expense in the Non-GAAP Measures section.

Sales and marketing expenses for
the three months ended December 31, 2016were $1.5 million, a decrease of ($0.5) million, or (23%), compared to the
corresponding period of 2015. Excluding stock-based compensation (expense)
recovery of $0.2 million and ($0.1) million, respectively, in each of the
periods, cash sales and marketing operating costs (see Supplemental Non-GAAP
Measures) were $1.7 million in the fourth quarter of 2016, a decrease of ($0.2)
million, or (10%) compared to the third fourth of 2015.

The ($0.2) million, or (10%), decrease
in cash sales and marketing operating costs (see Supplemental Non-GAAP Measures)
in the fourth quarter of 2016 was driven primarily by cost reductions as a
result of the Companys rationalization and renewal initiatives undertaken in
the first quarter of 2016 which were primarily focused on reducing our operating
cost base associated with methanol Telecom Backup Power activities including
significant reductions in our sales and marketing efforts associated with this
market. These cost savings were partially offset by higher labour costs as a
result of increased bonus accrual expenses in 2016 as compared to 2015.

Page 25 of
53

---





Sales and marketing expenses for
the year ended December 31, 2016were
$7.2 million, a decrease of ($0.2) million, or (3%), compared to the
corresponding period of 2015. Excluding stock-based compensation expense of
($0.3) million and ($0.7) million, respectively, in each of the periods, cash
sales and marketing operating costs (see Supplemental Non-GAAP Measures) were
$6.9 million in 2016, an increase of $0.2 million, or 2% compared to
2015.

The $0.2 million, or 2% increase in
cash sales and marketing operating costs (see Supplemental Non-GAAP Measures) in
2016 was driven primarily by the acquisition of Protonex on October 1, 2015,
which contributed $1.6 million of sales and marketing operating expense in 2016
as compared to $0.3 million in 2015, combined with higher labour costs as a
result of increased bonus accrual expenses in 2016 as compared to 2015. These
cost pressures in 2016 was partially offset by cost reductions as a result of
the Companys rationalization and renewal initiatives undertaken in the first
quarter of 2016 which were primarily focused on reducing our operating cost base
associated with methanol Telecom Backup Power activities including significant
reductions in our sales and marketing efforts associated with this market. In
addition, sales and marketing expense in 2016 were positively impacted by lower
labour costs in Canada as a result of an approximate (4%) lower Canadian dollar,
relative to the U.S. dollar, and the resulting positive impact on our Canadian
operating cost base.

Stock-based compensation expense
included in sales and marketing expense (recovery) for the three months and year
ended December 31, 2016was ($0.2) million
and $0.3 million, respectively, compared to $0.1 million and $0.7 million,
respectively, for the corresponding periods of 2015. The overall reduction in
2016 was due primarily to the Companys rationalization and renewal initiatives
undertaken in the first quarter of 2016, partially offset by a downward
adjustment to accrued stock-based compensation expense made in the fourth
quarter of 2015 as certain outstanding restricted share units failed to meet the
vesting criteria.

Other expense (recovery) for the
three months and year ended December 31, 2016was ($0.2) million and $2.5 million, respectively, compared to $0.9
million and $0.6 million, respectively for the corresponding periods of 2015.
The following tables provide a breakdown of other expense (recovery) for the
reported periods:

|(Expressed in thousands of U.S. dollars)  |  | Three months ended December 31,
|----------------------------------------- |  | -------------------------------
|                                          |  | 2016                           
|Impairment loss (recovery)
      on trade |  |                                
|receivables                               |  | $                              
|Restructuring expense (recovery)          |  |                                
|Acquisition charges                       |  |                                
|Other expenses (recovery)                 |  | $                              

Page 26 of 53

---





|(Expressed in thousands of U.S. dollars)  |  | Year ended December 31,
|----------------------------------------- |  | -----------------------
|                                          |  | 2016                   
|Impairment loss (recovery)
      on trade |  |                        
|receivables                               |  | $                      
|Restructuring expense                     |  |                        
|Acquisition charges                       |  |                        
|Other expenses (recovery)                 |  | $                      

Net impairment loss (recovery) on trade
receivables of for the three months and year ended December 31, 2016 was ($0.1)
million in each of the periods, compared to ($0.9) million for the year ended
December 31, 2015. Net Impairment (loss) recovery on trade receivables of ($0.9)
million for 2015 consist of a ($1.5) million impairment recovery as we collected
on certain accounts in 2015 principally in Asia that were considered impaired
and written down in 2014, less impairment charges in 2015 of ($0.6) million
related to non-collection of certain other accounts primarily in
Asia.In the event
that we are able to recover on an impaired trade receivable through legal or
other means, the recovered amount is recognized in the period of recovery as a
reversal of the impairment loss.

Restructuring expenses of $2.3 million
for the year ended December 31, 2016 relate primarily to cost reduction
initiatives that included the elimination of approximately 50 positions
including the elimination of three executive level positions. These cost
reduction initiatives were primarily focused on reducing our operating cost base
associated with methanol Telecom Backup Power activities as we reviewed
strategic alternatives for these assets prior to the CHEM Transaction.

Acquisition charges for the three
months and year ended December 31, 2015 of $0.9 million and $1.5 million,
respectively, consist of brokerage, legal and other costs incurred related to
the acquisition of Protonex which closed on October 1, 2015. Acquisition costs
are expensed as incurred.

Finance income (loss) and other
for the three months and year ended December 31, 2016was ($0.7) million and ($0.8) million, respectively, compared
to ($1.0) million and ($0.3) million, respectively, for the corresponding
periods of 2015. The following tables provide a breakdown of finance and other
income (loss) for the reported periods:

|(Expressed in thousands of U.S. dollars)   |  | Three months ended December 31,
|------------------------------------------ |  | -------------------------------
|                                           |  | 2016                           
|Employee future benefit
      plan expense |  | $                              
|Pension administration expense             |  |                                
|Investment and other
      income (loss)   |  |                                
|Foreign exchange gain (loss)               |  |                                
|Finance income (loss) and
other            |  | $                              

Page 27 of 53

---





|(Expressed in thousands of U.S. dollars)   |  | Year ended December 31,
|------------------------------------------ |  | -----------------------
|                                           |  | 2016                   
|Employee future benefit
      plan expense |  | $                      
|Pension administration expense             |  |                        
|Investment and other
      income          |  |                        
|Foreign exchange gain (loss)               |  |                        
|Finance income (loss) and
      other      |  | $                      

Employee future benefit plan expense
for the three months and year ended December 31, 2016 were ($0.1) million and
($0.3) million, respectively, consistent with the corresponding periods of 2015.
Employee future benefit plan expense primarily represents the excess of expected
interest cost on plan obligations in excess of the expected return on plan
assets related to a curtailed defined benefit pension plan for certain former
United States employees. Pension administration expense of ($0.1) million for
the years ended December 31, 2016 and 2015 represent administrative costs
incurred in managing the plan.

Foreign exchange gains (losses) for the
three months and year ended December 31, 2016 were ($0.7) million and ($0.6)
million, respectively, compared to ($0.9) million and ($0.1) million,
respectively, for the corresponding periods of 2015. Foreign exchange gains and
losses are attributable primarily to the effect of the changes in the value of
the Canadian dollar, relative to the U.S. dollar, on our Canadian
dollar-denominated net monetary position and on any outstanding foreign exchange
currency contracts that are marked to market each reporting period if not
qualified for hedge accounting treatment. Foreign exchange gains and losses are
also impacted by the conversion of Ballard Power Systems Europe A/S assets and
liabilities from the Danish Kroner to the U.S. dollar at exchange rates in
effect at each reporting date.

Investment and other income for the
three months and years ended December 31, 2016 and 2015 were nominal and were
earned primarily on our cash and cash equivalents.

Finance expense for the three
months and year ended December 31, 2016was ($0.2) million and ($0.7) million, respectively, compared to ($0.2) million
and ($0.8) million, respectively, for the corresponding periods of 2015. Finance
expense relates primarily to the sale and leaseback of our head office building
in Burnaby, British Columbia which was completed on March 9, 2010. Due to the
long term nature of the lease, the leaseback of the building qualifies as a
finance (or capital) lease.

Gain on sale of Intellectual
Property for the three months and year ended December 31, 2015was $5.4 million and $19.6 million,
respectively, and resulted from the transfer of ownership of the UTC Portfolio
previously acquired by us from UTC in 2014 to Volkswagen in 2015 through two
separate transactions under the Volkswagen IP Agreement for total gross proceeds
of $50 million.

Page 28 of
53

---





On the closing of the sale of the
automotive-related patents and patent applications of the UTC Portfolio in the
first quarter of 2015, we recognized a gain on sale of intellectual property of
$14.2 million on net proceeds received of $29.5 million. On the closing of the
initial transaction on February 23, 2015, Ballard transferred ownership of the
automotive-related patents and patent applications
of the UTC Portfolio in exchange for gross proceeds of $40 million. This receipt
triggered a 25%, or $10.0 million, license fee payment to UTC. Although
ownership of the patents and patent applications was transferred to Volkswagen,
Ballard received a royalty-free back-license to all the transferred patents and
patent applications for use in all non-automotive applications, in bus
applications and in certain limited pre-commercial automotive applications. The
gain on sale of intellectual property of $14.2 million represents gross proceeds
received on the sale of the automotive-related patents and patent applications
from Volkswagen of $40.0 million, net of the license fee paid to UTC of ($10.0)
million, transaction costs of approximately ($0.5) million, and the ascribed
cost of the patents and patent applications in the UTC Portfolio of
approximately ($15.3) million.

On the closing of the sale of a copy of
the automotive-related know-how of the UTC Portfolio in the fourth quarter of
2015, we recognized an additional gain on sale of intellectual property of $5.4
million. On the closing of the second tranche on December 2, 2015, Ballard
transferred a copy of the automotive-related know-how of the UTC Portfolio in
exchange for gross proceeds receivable of $10 million. This receivable was
recorded in trade and other receivables at December 31, 2015 and was
subsequently collected in the first quarter of 2016. This receipt triggered a
9%, or $0.9 million, payment to UTC in the first quarter of 2016 which was
recorded in accounts payable and accrued liabilities as of December 31, 2015. On
the closing of the sale of a copy of the automotive-related know-how of the UTC
Portfolio, Ballard retained full ownership of the know-how including the right
to sell additional copies of the know-how to third parties as well as retaining
the right to use the know-how in all our applications. The gain on sale of
intellectual property of $5.4 million represents gross proceeds from Volkswagen
of $10.0 million, net of a fee payable to UTC of ($0.9) million, and the
ascribed cost of the automotive-related know-how of the UTC Portfolio previously
classified as assets held for sale of approximately ($3.8) million.

Impairment (Loss) on Intangible
Assets and Property, Plant and Equipment for the year ended December,
2016of ($1.2) million consists of a
($0.8) million impairment charge on intangible assets and a ($0.4) million
impairment charge on property, plant and equipment as we wrote-down certain
methanol Telecom Backup Power assets to their estimated net realizable value of
$nil. The impairment charges were incurred during the first quarter of 2016
while we continued to review strategic alternatives for our methanol Telecom
Backup Power assets prior to concluding the transaction with CHEM in the second
quarter of 2016.

Gain (Loss) on sale of assets for
the year ended December 31, 2016of
($0.6) million and was recognized as a result of the closing of the transaction
with CHEM. During the second quarter of 2016, we completed the sale of certain
of our methanol Telecom Backup Power business assets to CHEM for a purchase
price of up to $6.1 million, of which $3 million was paid on closing. The
remaining potential purchase price of up to $3.1 million consists of an earn-out
arising from sales of methanol Telecom Backup Power systems by CHEM during the
18-month period to November 2017 derived from the sales pipeline transferred to
CHEM on closing. The remaining potential purchase price of up to $3.1 million
has been recorded as proceeds receivable at its estimated fair value of $1.8
million. The final gain (loss) on sale arising from the CHEM transaction is
subject to change depending upon the final earn-out amount actually
received by Ballard through November 2017. No developments have occurred to date
to cause us to reassess the fair value of the remaining potential proceeds at
$1.8 million. On the closing of this transaction, CHEM received certain assets
related to the methanol Telecom Backup Power line of our business, including
intellectual property rights and physical assets such as inventory and related
product brands.

Page 29 of
53

---





Net income (loss) attributed to
non-controlling interestsfor the three
months and year ended December 31, 2016 was $0.2 million and ($0.6) million,
respectively, compared to $0.1 million and ($0.8) million, respectively, for the
corresponding periods of 2015. Amounts primarily represent the non-controlling
interest of Dansk Industri Invest A/S in the losses of Ballard Power Systems
Europe A/S (formerly named Dantherm Power A/S) as a result of their 43% total
equity interest in Ballard Power Systems Europe A/S and were relatively
consistent period over period.

SUMMARY OF QUARTERLY RESULTS FROM
CONTINUING OPERATIONS

The following table provides summary
financial data for our last eight quarters from continuing operations:

|(Expressed in thousands of U.S.
      dollars, except per share amounts | Quarter ended,
|----------------------------------------------------------------------- | --------------
|and
      weighted average shares outstanding which are expressed in    |               
|thousands)                                                              |               
|                                                                        |               
|                                                                        |               
|Revenues from continuing operations                                     |               
|Net income
      (loss) attributable to Ballard from                    |               
|continuing
      operations                                             |               
|Net income (loss) per share attributable to                             |               
|Ballard from continuing operations, basic and                           |               
|diluted                                                                 |               
|Weighted average common shares
      outstanding                        |               
|                                                                       
|                                                                        |               
|                                                                        |               
|Revenues                                                                |               
|Net income
      (loss) attributable to Ballard                         |               
|Net income (loss) per share attributable to                             |               
|Ballard from continuing operations, basic and                           |               
|diluted                                                                 |               
|Weighted average common shares
      outstanding                        |               

Summary of Quarterly
Results: There were no significant seasonal
variations in our quarterly results from continuing operations. Variations in
our net loss for the above periods were affected primarily by the following
factors:

|● | Revenues: Variations in fuel cell product and service revenues
      reflect the demand and timing of our customers fuel cell vehicle, bus and
      fuel cell product deployments as well as the demand and timing of their
      engineering services projects. Variations in fuel cell product and service
      revenues also reflect the timing of work performed and the achievements of
      milestones under long-term fixed price contracts. Revenues were positively
      impacted as of the fourth quarter of 2015 by the acquisition of Protonex
      on October 1, 2015. Revenues were negatively impacted as of the second
      quarter of 2016 by the CHEM transaction whereby
      we disposed certain assets related to our methanol Telecom Backup Power
      line of our business including intellectual property rights and physical
      assets such as inventory and related product brands.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 30 of
53

---





|● | Operating expenditures:
      Operating expenses were negatively impacted in the first quarter of 2016
      by restructuring expenses of ($2.3) million related to cost reduction
      initiatives that included the elimination of approximately 50 positions
      including the elimination of three executive level positions. Operating
      expenses were negatively impacted as of the fourth quarter of 2015 by the
      acquisition of Protonex and the assumption of its cost base on October 1,
      2015, including the incurrence of acquisition related expenses totaling
      $1.5 million incurred in the second and third quarters of 2015. Operating
      expenses were positively impacted in the first quarter of 2015 by net
      recoveries of previously impaired trade receivables of $1.0 million.
      Impairment losses on trade receivables are recognized in other income
      (expense). Operating expenses also include the impact of changes in the
      value of the Canadian dollar, versus the U.S. dollar, on our Canadian
      dollar denominated expenditures.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | Net income (loss):Net income
      for the first quarter of 2016 was negatively impacted by impairment losses
      on intangible assets and property, plant and equipment totaling ($1.2)
      million as a result of the write-down of certain Telecom Backup Power
      assets to their estimated net realizable value of $nil. Net income for the
      first quarter of 2015 was positively impacted by a gain on sale of
      intellectual propertyof $14.2 million resulting from the
      sale of the automotive-related patents and patent applications of the UTC
      Portfolio transferred to Volkswagen on the closing of the initial tranche
      of the Volkswagen IP Agreement. Net income for the fourth quarter of 2015
      was positively impacted by a gain on sale of intellectual
      propertyof $5.4 million resulting from the sale of a copy of the
      automotive-related know-how of the UTC Portfolio to Volkswagen on the
      closing of the second and final tranche of the Volkswagen IP Agreement.                                                                

CASH FLOWSCash and cash equivalents were $72.6 million at December 31,
2016, compared to $40.0 million at December 31, 2015. The $32.6 million increase
in cash and cash equivalents in 2016 was driven by net proceeds received in the
third quarter of 2016 from the Broad-Ocean strategic equity investment of $28.2
million, net proceeds of $9.2 million received in the first quarter of 2016 as a
result of the fourth quarter of 2015 sale of the automotive-related know-how of
the UTC Portfolio to Volkswagen pursuant to the second and final tranche of the
Volkswagen IP Agreement, by net proceeds of $3.3 million (Canadian $4.6 million)
as we agreed to a settlement agreement with Superior Plus as to the full and
final amount payable to us under the Indemnity Agreement, by the initial net
proceeds received of $3.0 million related to the CHEM transaction, and by net
working capital inflows of $8.5 million. These 2016 inflows were partially
offset by a net loss (excluding non-cash items) of ($12.4) million, purchases of
property, plant and equipment of ($2.8) million, investments in fuel cell
technology intangible assets of ($1.1) million, investments in other intangible
assets of ($3.0) million, and by finance lease repayments of ($1.0)
million.

For the three months ended December 31,
2016, cash provided by (used in) operating activities was $8.0 million,
consisting of cash operating income of $1.1 million, combined with net working
capital inflows of $6.9 million. For the three months ended December 31, 2015, cash used by operating activities
was ($10.6) million, consisting of cash operating losses of ($4.7) million and
net working capital outflows of ($5.9) million. The $18.6 million reduction in
cash used by operating activities in the fourth quarter of 2016, as compared to
the fourth quarter of 2015, was driven by the relative improvement in cash
operating losses of $5.8 million, combined with the relative reduction in
working capital requirements of $12.8 million. The $5.8 million decline in cash
operating losses in the fourth quarter of 2016 was due primarily to the $4.7
million reduction in Adjusted EBITDA loss, combined with lower acquisition costs
of $0.9 million which were incurred for the Protonex acquisition in the fourth
quarter of 2015.

Page 31 of
53

---





In the fourth quarter of 2016, net
working capital inflows of $6.9 million was driven by lower inventory of $6.5
million as we delivered the expected Heavy-Duty Motive shipments to customers in
the last quarter of 2016, and by higher deferred revenue of $3.9 million as we
collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed. These fourth quarter of 2016 working
capital inflows were partially offset by lower accounts payable and accrued
liabilities of ($1.7) million due primarily to the timing of purchases and
supplier payments, and by lower accrued warranty obligations of ($1.5) million
due primarily to customer service related expenses incurred in our Material
Handling market and by Backup Power warranty contract expirations.

In the fourth quarter of 2015, net
working capital cash outflows of ($5.9) million were driven by higher accounts
receivable of ($2.2) million primarily as a result of the timing of Portable
Power and Heavy-Duty Motive revenues and the related customer collections, by
lower accounts payable and accrued liabilities of ($1.8) million due primarily
to the timing of purchases and supplier payments including the payment of
acquisition and transaction related costs incurred on the Protonex acquisition,
and by lower deferred revenue of ($1.5) million as we completed the contract
work on certain Technology Solutions, Heavy-Duty Motive and government grant
contracts for which we received pre-payments in an earlier period.

For the year ended December 31, 2016,
cash used in operating activities in 2016 was ($3.9) million, consisting of cash
operating losses of ($12.4) million, partially offset by net working capital
inflows of $8.5 million. For the year ended December 31, 2015, cash used in
operating activities was ($25.4) million, consisting of cash operating losses of
($19.3) million and net working capital outflows of ($6.0) million. The $21.5
million reduction in cash used by operating activities in 2016, as compared to
2015, was driven by the relative improvement in cash operating losses of $6.9
million, combined with the relative reduction in working capital changes of
$14.6 million. The $6.9 million decline in cash operating losses in 2016 was due
primarily to the $5.4 million reduction in Adjusted EBITDA loss, combined with
lower acquisition costs of $1.5 million which were incurred for the Protonex
acquisition in 2015.

Page 32 of
53

---





In 2016, net working capital inflows of
$8.5 million in 2016 were driven by higher deferred revenue of $14.5 million as
we collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed, and by higher accounts payable and
accrued liabilities of $1.0 million due primarily to restructuring and wage
accrual expenses which will be paid into 2017. These 2016 working capital
inflows were partially offset by higher inventory of ($2.3) million primarily to
support expected Heavy-Duty Motive shipments to customers in the first quarter
of 2017, by lower accrued warranty obligations of ($2.6) million due primarily
to customer service related expenses incurred in our Material Handling market
and by Backup Power warranty contract expirations, by higher prepaid expenses of
($1.3) million primarily related to withholding taxes incurred on certain
Chinese transactions, and by higher accounts receivable of ($0.8) million
primarily as a result of the timing of Material Handling, Technology Solutions
and Portable Power revenues and the related customer collections.

Working capital outflows of ($6.0)
million in 2015 was driven by higher inventory of ($5.6) million primarily to
support expected Heavy-Duty Motive and Portable Power product shipments in the
first quarter of 2016, by lower accrued warranty obligations of ($3.6) million
due primarily to customer service related expenses incurred in our Backup Power
market in Asia and by Heavy-Duty Motive warranty contract expirations, and by
lower accounts payable and accrued liabilities of ($1.3) million due primarily
to the timing of purchases and supplier payments. These 2015 working capital
outflows were partially offset by higher deferred revenue of $4.0 million as we
collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed.

Investing activities resulted in net
cash inflows (outflows) of ($3.4) million and $5.2 million, respectively, for
the three months and year ended December 31, 2016, compared to net cash inflows
(outflows) of ($3.6) million and $23.3 million, respectively, for the
corresponding periods of 2015. Investing activities in 2016 of $5.2 million
consist primarily of net proceeds of $9.2 million received in the first quarter
of 2016 as a result of the fourth quarter of 2015 sale of the automotive-related
know-how of the UTC Portfolio to Volkswagen, the initial net proceeds of $3.0
million received in the second quarter of 2016 from the CHEM transaction,
partially offset by capital expenditures of ($2.8) million, by investments in
fuel cell technology intangible assets of ($1.1) million, and by investments in
other intangible assets of ($3.0) million relating to a fully integrated
Enterprise Resource Planning (ERP) management reporting software system.
Investing activities in 2015 of $23.3 million consist primarily of net proceeds
on the sale of intellectual property of $29.5 million received on the closing of
the initial tranche of the Volkswagen IP Agreement, partially offset by capital
expenditures of ($2.3) million, by the acquisition of Protonex of ($3.8) million
partially offset by acquired Protonex cash of $1.5 million, and by investments
in fuel cell technology intangible assets of ($1.6) million.

Financing activities resulted in net
cash inflows of nil and $31.0 million, respectively, for the three months and
year ended December 31, 2016, compared to net cash inflows of $4.9 million and
$18.1 million, respectively, for the corresponding periods of 2015. Financing
activities in 2016 of $31.0 million consist of net proceeds received from the
Broad-Ocean strategic equity investment of $28.2 million, net proceeds of $3.3
million (Canadian $4.6 million) received pursuant to a settlement agreement with
Superior Plus as to the full and final amount payable to us under the Indemnity
Agreement, proceeds from employee share purchase option exercises of $0.5
million, partially offset by capital lease payments of ($1.0) million. Financing
activities in 2015 of $18.1 million consist of net proceeds received from the
July 2015 Offering of $13.4 million, net proceeds from the November 2015
Nisshinbo strategic equity investment of $5.0 million, net proceeds from share
purchase warrant exercises of $0.2 million, proceeds from employee share
purchase option exercises of $0.4 million, partially offset by capital lease
payments of ($0.8) million.

Page 33 of
53

---





LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2016, we had total
Liquidity of $72.6 million. We measure Liquidity as our net cash position,
consisting of the sum of our cash, cash equivalents and short-term investments
of $72.6 million, net of amounts drawn on our $7 million Canadian demand
revolving facility (Operating Facility) of nil. The Operating Facility is
occasionally used to assist in financing our short term working capital
requirements and is secured by a hypothecation of our cash, cash equivalents and
short-term investments.

We also have a $1.8 million Canadian
capital leasing facility (Leasing Facility) which is occasionally used to
finance the acquisition and / or lease of operating equipment and is secured by
a hypothecation of our cash, cash equivalents and short-term investments. As of
December 31, 2016, nothing was outstanding on the Leasing Facility.

Our Liquidity objective is to maintain
cash balances sufficient to fund at least six quarters of forecasted cash used
by operating activities at all times. Our strategy to attain this objective is
to continue our drive to attain profitable operations that are sustainable by
executing a business plan that continues to focus on Fuel Cell Products and
Services revenue growth, improving overall gross margins, minimizing Cash
Operating Costs, managing working capital requirements, and securing additional
financing to fund our operations as needed until we do achieve profitable
operations that are sustainable. As a result of our recent actions to bolster
our cash balances including the net proceeds received pursuant to the Broad
Ocean strategic equity investment, the Volkswagen IP Agreement, the July 2015
Offering, the November 2015 Nisshinbo equity investment, and the settlement of
the Superior Plus Indemnity Agreement, along with the improvement in our
financial performance, we believe that we have adequate liquidity in cash and
working capital to meet this Liquidity objective and to finance our
operations.

Failure to achieve or maintain this
Liquidity objective could have a material adverse effect on our financial
condition and results of operations including our ability to continue as a going
concern. There are also various risks and uncertainties affecting our ability to
achieve this Liquidity objective including, but not limited to, the market
acceptance and rate of commercialization of our products, the ability to
successfully execute our business plan, and general global economic conditions,
certain of which are beyond our control. While we continue to make significant
investments in product development and market development activities necessary
to commercialize our products, and make increased investments in working capital
as we grow our business, our actual liquidity requirements will also vary and
will be impacted by our relationships with our lead customers and strategic
partners, our success in developing new channels to market and relationships
with customers, our success in generating revenue growth from near-term product,
service and licensing opportunities, our success in managing our operating
expense and working capital requirements, foreign exchange fluctuations, and the
progress and results of our research, development and demonstration programs.

Page 34 of
53

---





In addition to our existing cash
reserves of $72.6 million at December 31, 2016, there are 0.1 million warrants
outstanding (expire on March 27, 2018) from the March 2013 underwritten offering
each of which enables the holder to purchase one common share at a fixed price
of $1.50 per common share, and 1.7 million warrants outstanding (expire on
October 9, 2018) from the October 2013 underwritten offering each of which
enable the holder to purchase one common share at a fixed price of $2.00 per
common share. If any of these warrants are exercised, our liquidity position
would be further augmented. We may also choose to pursue additional liquidity
through the issuance of debt or equity in private or public market financings.
To enable such an action and to allow the exercise of warrants, we filed a new
short form base shelf prospectus (Prospectus) in June 2016 ahead of the expiry
of our existing short form base shelf prospectus in each of the provinces and
territories of Canada, except Quebec, and a corresponding shelf registration
statement on Form F-10 (Registration Statement) with the United States
Securities and Exchange Commission. These filings enable offerings of equity
securities during the effective period (to July 2018) of the Prospectus and
Registration Statements. However, no assurance can be given that any such
additional liquidity will be available or that, if available, it can be obtained
on terms favorable to the Company.

2017 BUSINESS OUTLOOK

Ballard has committed orders of
approximately $87 million expected for delivery in 2017, along with a significant
pipeline of qualified commercial sales opportunities. We believe that these
orders and our sales pipeline, along with current market conditions and our
strategic, competitive and balance sheet positioning, support continued revenue
growth, growth margin expansion and improved financial performance in 2017.
Sales to Chinese customers in 2017 are also expected to account for an increased
proportion of total revenue.

We anticipate growth in product
revenues in 2017 supported by increased activity in Heavy-Duty Motive and growth
in Portable Power. We also expect Technology Solutions to account for a larger
proportion of total revenue in 2017, supported by work related to contracts in
China as well as engineering services work with automotive partners. In
addition, Technology Solutions work is expected with customers in the rail,
military, and unmanned aerial vehicle sectors.

Given the early stage of fuel cell
market development and adoption rate and consistent with our approach in 2016,
we have decided not to provide specific financial performance guidance for 2017.
While our strategic focus on multiple fuel cell product markets, engineering
services and intellectual property monetization serves to mitigate risk, the
resulting cadence in customer demand can be uneven through the early stages of
market development. As such, our financial results on a quarterly basis are
subject to a high degree of variability.

Page 35 of
53

---





Our outlook for 2017 is based on our
internal forecast which reflects an assessment of overall business conditions
and takes into account actual sales and financial results in the first six weeks
of 2017, sales orders received for units and services to be delivered in the
remainder of 2017, an estimate with respect to the generation of new sales and
the timing of deliveries in each of our markets for the balance of 2017, and
assumes an average U.S. dollar exchange rate in the mid 70s in relation to the
Canadian dollar for the remainder of 2017. The primary risk factors to our
business outlook expectations for 2017 are delays from forecast in terms of
closing and delivering expected sales primarily in our Heavy-Duty Motive and
Portable Power markets, potential adverse macro-economic conditions negatively
impacting our Chinese customers access to capital and program plans which could
adversely impact our Heavy-Duty market, potential disruptions in the Material
Handling market as a result of our reliance on a single customer in this market
and that customers internal stack development and commercialization plans, and
fluctuations in the Canadian dollar, relative to the U.S. dollar, as a
significant portion of our Technology Solutions revenues (including the
technology development and engineering services agreement with Volkswagen) are
priced in Canadian dollars.

Furthermore, potential fluctuations in
our financial results make financial forecasting difficult. The Company's
revenues, cash flows and other operating results can vary significantly from
quarter to quarter. Sales and margins may be lower than anticipated due to
general economic conditions, market-related factors and competitive factors.
Cash receipts may also vary from quarter to quarter due to the timing of cash
collections from customers. As a result, quarter-to-quarter comparisons of
revenues, cash flows and other operating results may not be meaningful. In
addition, due to the early stage of development of the market for hydrogen fuel
cell products, it is difficult to accurately predict future revenues, cash flows
or results of operations on a quarterly basis. It is likely that in one or more
future quarters, financial results will fall below the expectations of
securities analysts and investors. If this occurs, the trading price of the
Company's shares may be materially and adversely affected.

OFF-BALANCE SHEET ARRANGEMENTS &
CONTRACTUAL OBLIGATIONS

Periodically, we use forward foreign
exchange and forward platinum purchase contracts to manage our exposure to
currency rate fluctuations and platinum price fluctuations. We record these
contracts at their fair value as either assets or liabilities on our balance
sheet. Any changes in fair value are either (i) recorded in other comprehensive
income if formally designated and qualified under hedge accounting criteria; or
(ii) recorded in profit or loss if either not designated, or not qualified,
under hedge accounting criteria. At December 31, 2016, we had outstanding
foreign exchange currency contracts to purchase a total of Canadian $10.75
million at an average rate of 1.32 Canadian per U.S dollar, resulting in an
unrealized loss of Canadian ($0.2) million at December 31, 2016. The outstanding
foreign exchange currency contracts are not qualified under hedge accounting.

At December 31, 2016, we did not have
any other material obligations under guarantee contracts, retained or contingent
interests in transferred assets, outstanding derivative instruments or
non-consolidated variable interests.

Page 36 of
53

---





At December 31, 2016, we had the
following contractual obligations and commercial commitments:

|(Expressed in thousands of U.S. dollars) |  | Payments due by period,
|---------------------------------------- |  | -----------------------
|Contractual
      Obligations            |  | Total                  
|                                         |  |                        
|Operating leases                         |  | $                      
|Capital leases                           |  |                        
|Asset retirement obligations             |  |                        
|Total contractual obligations            |  | $                      

In addition, we have outstanding
commitments of $3.9 million at December 31, 2016 related primarily to the
ongoing implementation of an ERP management reporting software system and for
purchases of capital assets. Capital expenditures and expenditures on other
intangible assets pertain to our regular operations and are expected to be
funded through cash on hand.

In connection with the acquisition of
intellectual property from UTC on April 24, 2014, we retain a royalty obligation
to pay UTC a portion (typically 25%) of any future intellectual property sale
and licensing income generated from our intellectual property portfolio for a
period of 15-years expiring in April 2029.

As at December 31, 2016, we retain a
previous funding obligation to pay royalties of 2% of revenues (to a maximum of
Canadian $5.4 million) on sales of certain fuel cell products for commercial
distributed utility applications. No royalties have been incurred to date as a
result of this agreement. We also retain a previous funding obligation to pay
royalties of 2% of revenues (to a maximum of Canadian $2.2 million) on sales of
certain fuel cell products for commercial transit applications. No royalties
have been incurred to date as a result of this agreement.

In the ordinary course of business or
as required by certain acquisition or disposition agreements, we are
periodically required to provide certain indemnities to other parties.

At December 31, 2016, we have not
accrued any amount owing, or receivable, as a result of any indemnity agreements
undertaken in the ordinary course of business.

Page 37 of
53

---





RELATED PARTY TRANSACTIONS

Related parties include shareholders
with a significant ownership interest in us including their subsidiaries and
affiliates, and our equity accounted investee. Revenues and costs recognized
from such transactions reflect the prices and terms of sale and purchase
transactions with related parties, which are in accordance with normal trade
practices at fair value. Transactions between us and our subsidiaries are
eliminated on consolidation. For the three months and years ended December 31,
2016 and 2015, related party transactions and balances were limited to
transactions with our 10% equity accounted investee, Synergy JVCo as
follows:

|(Expressed in thousands of U.S. dollars) | Three Months and Year Ended
|---------------------------------------- | ---------------------------
|                                         | December 31,               
|Transactions with related parties        | 2016                       
|Revenues                                 | $                          
|Purchases                                | $                          
|                                        
|(Expressed in thousands of U.S. dollars) | As at December 31,         
|Balances with related parties            | 2016                       
|Investments                              | $                          
|Trade and other
      payables           | $                          
|Deferred revenue                         | $                          

We also provide key management
personnel, being board directors and executive officers, certain benefits, in
addition to their salaries. Key management personnel also participate in the
Companys share-based compensation plans. Key management personnel compensation
is summarized in note 30 to our annual consolidated financial statements for the
year ended December 31, 2016.

|OUTSTANDING SHARE DATA                                          |            
|--------------------------------------------------------------- | -----------
|                                                               
|As at March 1, 2017                                             |            
|Common share outstanding                                        | 174,749,630
|Warrants outstanding                                            | 1,797,563  
|Options outstanding                                             | 5,537,729  
|DSUs outstanding                                               | 1,125,250  
|RSUs and PSUs outstanding (subject to vesting
      criteria) | 1,473,408  

CRITICAL ACCOUNTING POLICIES AND KEY
SOURCES OF ESTIMATION UNCERTAINTYOur
consolidated financial statements are prepared in accordance with IFRS, which
require us to make estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from those estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in
any future periods affected.

Critical Judgments in Applying
Accounting Policies:Critical
judgments that we have made in the process of applying our accounting policies
and that have the most significant effect on the amounts recognized in the
consolidated financial statements is limited to our assessment of the
Corporations ability to continue as a going concern (See Note 2 (e) to our
annual consolidated financial statements).

Our significant accounting policies are
detailed in note 4 to our annual consolidated financial statements for the year
ended December 31, 2016.

Key Sources of Estimation
Uncertainty:The following are key
assumptions concerning the future and other key sources of estimation
uncertainty that have a significant risk of resulting in a material adjustment
to the reported amount of assets, liabilities, income and expenses within the
next financial year.

Page 38 of
53

---





REVENUE RECOGNITION

Revenues are generated primarily from
product sales and services, the license and sale of intellectual property and
fundamental knowledge, and the provision of engineering services and technology
transfer services. Product and service revenues are derived primarily from
standard equipment and material sales contracts and from long-term fixed price
contracts. Intellectual property and fundamental knowledge license and sale
revenues are derived primarily from licensing and sale and technology transfer
agreements and from long-term fixed price contracts. Engineering service and
technology transfer service revenues are derived primarily from cost-plus
reimbursable contracts and from long-term fixed price contracts.

On standard equipment and material
sales contracts, revenues are recognized when (i) significant risks and rewards
of ownership of the goods has been transferred to the buyer; (ii) we retain
neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold; (iii) the amount of revenue
can be measured reliably; (iv) it is probable that the economic benefits
associated with the sale will accrue to us; and (v) the costs incurred, or to be
incurred, in respect of the transaction can be measured reliably. Provisions are
made at the time of sale for warranties. Revenue recognition for standard
equipment and material sales contracts does not usually involve significant
estimates.

On standard licensing and sale and
technology transfer agreements, revenues are recognized on the transfer of the
rights to the licensee if (i) the rights to the assets are assigned to the
licensee in return for a fixed fee or a non-refundable guarantee; (ii) the
contract is non-cancellable; (iii) the licensee is able to exploit its rights to
the asset freely; and (iv) the Company has no remaining obligations to perform.
Otherwise, the proceeds are considered to relate to the right to use the asset
over the license period and the revenue is recognized over that period. Revenue
recognition for license and sale agreements does not usually involve significant
estimates.

On cost-plus reimbursable contracts,
revenues are recognized as costs are incurred, and include applicable fees
earned as services are provided. Revenue recognition for cost-plus reimbursable
contracts does not usually involve significant estimates.

On long-term fixed price contracts,
revenues are recorded on the percentage-of-completion basis over the duration of
the contract, which consists of recognizing revenue on a given contract
proportionately with its percentage of completion at any given time. The
percentage of completion is determined by dividing the cumulative costs incurred
as at the balance sheet date by the sum of incurred and anticipated costs for
completing a contract.

|● | The determination of anticipated
      costs for completing a contract is based on estimates that can be affected
      by a variety of factors such as variances in the timeline to completion,
      the cost of materials, the availability and cost of labour, as well as
      productivity.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 39 of
53

---





|● | The determination of potential revenues includes the contractually
      agreed amount and may be adjusted based on the estimate of our attainment
      on achieving certain defined contractual milestones. Managements
      estimation is required in determining the probability that the revenue
      will be received and in determining the measurement of that
      amount.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Estimates used to determine revenues
and costs of long-term fixed price contracts involve uncertainties that
ultimately depend on the outcome of future events and are periodically revised
as projects progress. There is a risk that a customer may ultimately disagree
with our assessment of the progress achieved against milestones, or that our
estimates of the work required to complete a contract may change. The cumulative
effect of changes to anticipated revenues and anticipated costs for completing a
contract are recognized in the period in which the revisions are identified. If
the anticipated costs exceed the anticipated revenues on a contract, such loss
is recognized in its entirety in the period it becomes known.

During the three months and year ended
December 31, 2016 and 2015, there was no material adjustments to revenues
relating to revenue recognized in a prior period.

ASSET IMPAIRMENT

The carrying amounts of our
non-financial assets other than inventories are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such
indication exists, then the assets recoverable amount is estimated. For
goodwill and intangible assets that have indefinite useful lives, the
recoverable amount is estimated at least annually.

The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. In assessing fair value less costs to sell, the price that would be
received on the sale of an asset in an orderly transaction between market
participants at the measurement date is estimated. For the purposes of
impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other groups
of assets. The allocation of goodwill to cash-generating units reflects the
lowest level at which goodwill is monitored for internal reporting purposes.
Many of the factors used in assessing fair value are outside the control of
management and it is reasonably likely that assumptions and estimates will
change from period to period. These changes may result in future impairments.
For example, our revenue growth rate could be lower than projected due to
economic, industry or competitive factors, or the discount rate used in our
value in use model could increase due to a change in market interest rates. In
addition, future goodwill impairment charges may be necessary if our market
capitalization decreased due to a decline in the trading price of our common
stock, which could negatively impact the fair value of our business.

Page 40 of
53

---





An impairment loss is recognized if the
carrying amount of an asset or its cash-generating unit exceeds its estimated
recoverable amount. Impairment losses are recognized in net loss. Impairment
losses recognized in respect of the cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the units, and then to
reduce the carrying amounts of the other assets in the unit on a pro-rata basis.

An impairment loss in respect of
goodwill is not reversed. In respect of other assets, impairment losses
recognized in prior periods are assessed at each reporting date for any
indications that the cumulative loss has decreased or no longer exists. An
impairment loss is reversed only to the extent that the assets carrying amount
does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized.

We perform the annual review of
goodwill as at December 31 of each year, more often if events or changes in
circumstances indicate that it might be impaired. Under IFRS, the annual review
of goodwill requires a comparison of the carrying value of the asset to the
higher of (i) value in use; and (ii) fair value less costs to
sell.Value
in use is defined as the present value of future cash flows expected to be
derived from the asset in its current state. As of December 31, 2016, our
consolidated goodwill balance of $40.6 million relates solely to our Fuel Cell
Products and Services segment. Based on the impairment test performed as at
December 31, 2016, we have concluded that no goodwill impairment charge is
required for the year ending December 31, 2016. Details of our 2016 goodwill
impairment tests are as follows:

|● | One of the methods used to assess
      the recoverable amount of the goodwill is a fair value, less costs to
      sale, test. Our fair value test is in effect a modified market
      capitalization assessment, whereby we calculate the fair value of the Fuel
      Cell Products and Services segment by first calculating the value of the
      Company at December 31, 2016 based on the average closing share price in
      the month of December, add a reasonable estimated control premium
      to determine the Companys enterprise value on a controlling basis after
      adjusting for excess cash balances, and then deducting the estimated costs
      to sell from this enterprise value to arrive at the fair value of the Fuel
      Cell Products and Services segment. As a result of this assessment, we
      have determined that the fair value of the Fuel Cell Products and Services
      segment exceeds its carrying value as of December 31, 2016 indicating that
      no impairment charge is required for 2016.                                                                                                                                                                                                                                                         
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | In
      addition to this fair value test, we also performed a value in use test on
      our Fuel Cell Products and Services segment that compared the carrying
      value of the segment to the present value of future cash flows expected to
      be derived from the segment. The principal factors used in this discounted
      cash flow analysis requiring significant estimation are the projected
      results of operations, the discount rate based on the weighted average
      cost of capital (WACC), and terminal value assumptions. Our value in use
      test was based on a WACC of 15%; an average estimated compound annual
      growth rate of approximately 25% from 2017 to 2022; and a terminal year
      EBITDA multiplied by a terminal value multiplier of 10. Our value in use
      assessment resulted in an estimated fair value for the Fuel Cell Products
      and Services segment that is consistent with that as determined under the
      above fair value, less costs to sell, assessment. As a result of this
      assessment, we have determined that the fair value of the Fuel Cell
      Products segment exceeds its carrying value by a significant amount as of
      December 31, 2016 indicating that no impairment charge is required in
      2016.

Page 41 of
53

---





In addition to the above goodwill
impairment test, we perform a quarterly assessment of the carrying amounts of
our non-financial assets (other than inventories) to determine whether there is
any indication of impairment. During the year ended December 31, 2016, we
recorded impairment losses on intangible assets of ($0.8) million and impairment
losses on property, plant and equipment of ($0.4) million as we wrote-down
certain methanol Telecom Backup Power assets to their estimated net realizable
value of $nil. The impairment charges were incurred during the first quarter of
2016 while we continued to review strategic alternatives for our methanol
Telecom Backup Power assets prior to concluding the transaction with CHEM in the
second quarter of 2016.

WARRANTY PROVISION

A provision for warranty costs is
recorded on product sales at the time of shipment. In establishing the accrued
warranty liabilities, we estimate the likelihood that products sold will
experience warranty claims and the cost to resolve claims received.

In making such determinations, we use
estimates based on the nature of the contract and past and projected experience
with the products. Should these estimates prove to be incorrect, we may incur
costs different from those provided for in our warranty provisions. During the
three months and year ended December 31, 2016, we recorded provisions to accrued
warranty liabilities of $0.4million and $1.1 million, respectively, for new product sales,
compared to $0.3 million and $0.9 million, respectively, for the three months
and year ended December 31, 2015.

We review our warranty assumptions and
make adjustments to accrued warranty liabilities quarterly based on the latest
information available and to reflect the expiry of contractual obligations.
Adjustments to accrued warranty liabilities are recorded in cost of product and
service revenues. As a result of these reviews and the resulting adjustments,
our warranty provision and cost of revenues for the three months and year ended
December 31, 2016 were adjusted downwards by a net amount of $0.4 million and
$0.5 million, respectively, compared to a net adjustment downwards of $0.5
million and $1.3 million for the three months and year ended December 31, 2015.
The positive adjustments to the accrued warranty liability provisions in 2016
were due primarily to contractual expirations and improved lifetimes of our
Backup Power products, whereas the positive adjustments to the accrued warranty
liability provision in 2015 were due primarily due to contractual warranty
expirations and improved lifetimes and reliability of our Heavy-Duty Motive
products.

INVENTORY PROVISION

In determining the lower of cost and
net realizable value of our inventory and establishing the appropriate provision
for inventory obsolescence, we estimate the likelihood that inventory carrying
values will be affected by changes in market pricing or demand for our products
and by changes in technology or design which could make inventory on hand
obsolete or recoverable at less than cost. We perform regular reviews to assess
the impact of changes in technology and design, sales trends and other changes
on the carrying value of inventory. Where we determine that such changes have
occurred and will have a negative impact on the value of inventory on hand,
appropriate provisions are made. If there is a subsequent increase in the
value of inventory on hand, reversals of previous write-downs to net realizable
value are made. Unforeseen changes in these factors could result in additional
inventory provisions, or reversals of previous provisions, being required.
During the three months and year ended December 31, 2016, negative inventory
adjustments of ($0.6) million were recorded as a charge to cost of product and
service revenues, compared to negative inventory adjustments of ($0.4) million
and ($0.6) million, respectively, for the three months and year ended December
31, 2015.

Page 42 of
53

---





IMPAIRMENT (LOSSES) RECOVERIES ON TRADE
RECEIVABLES

Trade and other receivables are
recognized initially at fair value and subsequently at amortized cost using the
effective interest method, less any impairment losses. Fair value is estimated
as the present value of future cash flows, discounted at the market rate of
interest at the reporting date. In determining the fair value of our trade and
other receivables and establishing the appropriate provision for doubtful
accounts, we perform regular reviews to estimate the likelihood that our trade
and other accounts receivable will ultimately be collected in a timely manner.
Where we determine that customer collectability issues have occurred and will
have a negative impact on the value of trade and other receivables, appropriate
provisions are made. If there is a subsequent recovery in the value of trade and
other receivables, reversals of previous write-downs to fair value are made.
Unforeseen changes in these factors could result in additional impairment
provisions, or reversals of previous impairment provisions, being required.
During the three months and year ended December 31, 2016, net impairment
(charges) on trade receivables of ($0.1) million were recorded in other
operating income, compared to net impairment (charges) recoveries of nil and
$0.9 million, respectively, for the three months and year ended December 31,
2015.

EMPLOYEE FUTURE BENEFITS

The present value of our defined
benefit obligation is determined by discounting the estimated future cash
outflows using interest rates of high-quality corporate bonds that have terms to
maturity approximating the terms of the related pension liability. Determination
of benefit expense requires assumptions such as the discount rate to measure
obligations, expected plan investment performance, expected healthcare cost
trend rate, and retirement ages of employees. Actual results will differ from
the recorded amounts based on these estimates and assumptions.

INCOME TAXES

We use the asset and liability method
of accounting for income taxes. Under this method, deferred income taxes are
recognized for the deferred income tax consequences attributable to differences
between the financial statement carrying values of assets and liabilities and
their respective income tax bases (temporary differences) and for loss
carry-forwards. The resulting changes in the net deferred tax asset or liability
are included in income.

Deferred tax assets and liabilities are
measured using enacted, or substantively enacted, tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities,
of a change in tax rates, is included in income in the period that includes the
substantive enactment date. Deferred income tax assets are reviewed at each
reporting period and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized. As of December 31, 2016 and 2015,
we have not recorded any deferred income tax assets on our consolidated
statement of financial position.

Page 43 of
53

---





NEW AND FUTURE IFRS ACCOUNTING
POLICIES

Recently Adopted Accounting
Policy Changes:

We did not adopt any new accounting
standard changes or amendments effective January 1, 2016 that had a material
impact on our consolidated financial statements.

Future Accounting Policy
Changes:

The following is an overview of
accounting standard changes that we will be required to adopt in future years.
We do not expect to adopt any of these standards before their effective dates
and we continue to evaluate the impact of these standards on our consolidated
financial statements.

IFRS 2  SHARE-BASED
PAYMENTS

On June 20, 2016, the IASB issued
amendments toIFRS 2 Share-based
Payment, clarifying how to account for
certain types of share-based payment transactions.

The amendments provide requirements on
the accounting for:

|● | the effects of vesting and
      non-vesting conditions on the measurement of cash-settled share-based
      payments;                                                 
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | share-based payment
      transactions with a net settlement feature for withholding tax
      obligations; and                                                        
|● | a modification to the terms
      and conditions of a share-based payment that changes the classification of
      the transaction from cash-settled to
equity-settled.

The amendments apply for annual periods
beginning on or after January 1, 2018. As a practical simplification, the
amendments can be applied prospectively. Retrospective, or early, application is
permitted if information is available without the use of hindsight. The
Corporation intends to adopt the amendments to IFRS 2 in its financial
statements for the fiscal year beginning on January 1, 2018. The extent of the
impact of adoption of the standard has not yet been determined.

IFRS 15  REVENUE FROM CONTRACTS
WITH CUSTOMERS

On May 28, 2014, the IASB issuedIFRS 15 Revenue from Contracts with
Customers. IFRS 15 will replaceIAS 11 Construction Contracts, IAS 18 Revenue,
IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction
of Real Estate,IFRIC 18 Transfer of Assets from Customers, andSIC 31 Revenue  Barter
Transactions Involving Advertising Services.
On April 12, 2016, the IASB issuedClarifications to IFRS 15, Revenue from Contracts with
Customers, which is effective at the same
time as IFRS 15.

IFRS 15 contains a single model that applies to contracts with
customers and two approaches to recognizing revenue: at a point in time or over
time. The model features a contract-based five-step analysis of transactions to
determine whether, how much, and when revenue is recognized. New estimates and
judgmental thresholds have been introduced, which may affect the amount and/or
timing of revenue recognized. The new standard applies to contracts with
customers. It does not apply to insurance contracts, financial instruments or
lease contracts, which fall in the scope of other IFRSs. The clarifications to
IFRS 15 provide additional guidance with respect to the five-step analysis,
transition, and the application of the Standard to licenses of intellectual
property.

Page 44 of
53

---





The new standard is effective for
annual periods beginning on or after January 1, 2018 and is available for early
adoption. The Corporation intends to adopt IFRS 15 in its financial statements
for the fiscal year beginning on January 1, 2018. The extent of the impact of
adoption of the standard has not yet been determined.

IFRS 9  FINANCIAL
INSTRUMENTS

On July 24, 2014, the IASB issued the
completeIFRS 9 Financial Instruments(IFRS 9 (2014)). IFRS 9 (2014) introduces
new requirements for the classification and measurement of financial assets.
Under IFRS 9 (2014), financial assets are classified and measured based on the
business model in which they are held and the characteristics of their
contractual cash flows.

The standard introduces additional
changes relating to financial liabilities. It also amends the impairment model
by introducing a new expected credit loss model for calculating impairment.

IFRS 9 (2014) also includes a new
general hedge accounting standard which aligns hedge accounting more closely
with risk management. This new standard does not fundamentally change the types
of hedging relationships or the requirement to measure and recognize
ineffectiveness; however it will provide more hedging strategies that are used
for risk management to qualify for hedge accounting and introduce more judgment
to assess the effectiveness of a hedging relationship. Special transitional
requirements have been set for the application of the new general hedging model.

The mandatory effective date of IFRS 9
(2014) is for annual periods beginning on or after January 1, 2018 and must be
applied retrospectively with some exemptions. Early adoption is permitted. The
restatement of prior periods is not required and is only permitted if
information is available without the use of hindsight. The Corporation intends
to adopt IFRS 9 (2014) in its financial statements for the fiscal year beginning
on January 1, 2018. The extent of the impact of adoption of the standard has not
yet been determined.

IFRS 16  LEASES

On January 13, 2016, the IASB issued
IFRS 16 Leases. IFRS 16 introduces a single lessee accounting model and requires
a lessee to recognize assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the
underlying asset and a lease liability representing its obligation to make lease
payments.

This standard substantially carries
forward the lessor accounting requirements of IAS 17, while requiring enhanced
disclosures to be provided by lessors. Other areas of the lease accounting model
have been impacted, including the definition of a lease. Transitional provisions
have been provided.

Page 45
of 53

---





The new standard is effective for
annual periods beginning on or after January 1, 2019. Early adoption is
permitted for entities that applyIFRS 15
Revenue from Contracts with Customersas at
or before the date of initial adoption of IFRS 16. IFRS 16 will replaceIAS 17 Leases.The Corporation intends to adopt IFRS 16 in its financial statements for
the fiscal year beginning on January 1, 2019. The extent of the impact of
adoption of the standard has not yet been determined.

SUPPLEMENTAL NON-GAAP MEASURESIn addition to providing measures
prepared in accordance with GAAP, we present certain supplemental non-GAAP
measures. These measures are Cash Operating Costs (including its components of
research and product development (operating cost), general and administrative
(operating cost) and sales and marketing (operating cost)), EBITDA and Adjusted
EBITDA, and Adjusted Net Loss. These non-GAAP measures do not have any
standardized meaning prescribed by GAAP and therefore are unlikely to be
comparable to similar measures presented by other companies. We believe these
measures are useful in evaluating the operating performance of the Companys
ongoing business. These measures should be considered in addition to, and not as
a substitute for, net income, cash flows and other measures of financial
performance and liquidity reported in accordance with GAAP.

Cash Operating CostsThis supplemental non-GAAP measure is
provided to assist readers in determining our operating costs on an ongoing cash
basis. We believe this measure is useful in assessing performance and
highlighting trends on an overall basis.

We also believe Cash Operating Costs is
frequently used by securities analysts and investors when comparing our results
with those of other companies. Cash Operating Costs differs from the most
comparable GAAP measure, operating expenses, primarily because it does not
include stock-based compensation expense, depreciation and amortization,
impairment losses or recoveries on trade receivables, restructuring charges,
acquisition costs, and financing charges. The following tables show a
reconciliation of operating expenses to Cash Operating Costs for the three
months and year ended December 31, 2016 and 2015:

|(Expressed in thousands of U.S. dollars)    |  | Three months ended December 31,
|------------------------------------------- |  | -------------------------------
|Cash Operating Costs                        |  | 2016                           
|Total Operating
      Expenses              |  | $                              
|Stock-based compensation (expense)          |  |                                
|recovery                                    |  |                                
|Impairment recovery
      (losses) on trade |  |                                
|receivables                                 |  |                                
|Acquisition and integration costs           |  |                                
|Restructuring (charges)
      recovery      |  |                                
|Financing charges                           |  |                                
|Depreciation and
      amortization         |  |                                
|Cash Operating Costs                        |  | $                              

Page 46 of 53

---





|(Expressed in thousands of U.S. dollars)    |  | Year ended December 31,
|------------------------------------------- |  | -----------------------
|Cash Operating Costs                        |  | 2016                   
|Total Operating
      Expenses              |  | $                      
|Stock-based compensation (expense)          |  |                        
|recovery                                    |  |                        
|Impairment recovery
      (losses) on trade |  |                        
|receivables                                 |  |                        
|Acquisition and integration costs           |  |                        
|Restructuring
      (charges) recovery      |  |                        
|Financing charges                           |  |                        
|Depreciation and
      amortization         |  |                        
|**Cash Operating Costs**                    |  | $                      

The components of Cash Operating Costs
of research and product development (operating cost), general and administrative
(operating cost), and sales and marketing (operating cost) differ from their
respective most comparable GAAP measure of research and product development
expense, general and administrative expense, and sales and marketing expense,
primarily because they do not include stock-based compensation expense and
depreciation and amortization expense. A reconciliation of these respective
operating expenses to the respective components of Cash Operating Costs for the
three months and year ended December 31, 2016 and 2015 is included in Operating
Expense and Other Items.

A breakdown of total stock-based
compensation expense for the three months and year ended December 31, 2016 and
2015 are as follows:

|(Expressed in thousands of U.S. dollars)       |  | Three months ended December 31,
|---------------------------------------------- |  | -------------------------------
|Stock-based compensation expense               |  |                                
|Total stock-based
      compensation expense   |  |                                
|recorded as
    follows:                       |  |                                
|Cost of
      goods sold                       |  | $                              
|Research and product
      development expense |  |                                
|General
      and administrative expense       |  |                                
|Sales and marketing
      expense (recovery)   |  |                                
|Stock-based compensation
      expense         |  | $                              
|                                              
|(Expressed in thousands of U.S. dollars)       |  | Year ended December 31,        
|Stock-based compensation
      expense         |  |                                
|Total stock-based
      compensation expense   |  |                                
|recorded as
    follows:                       |  |                                
|Cost of
      goods sold                       |  | $                              
|Research and product
      development expense |  |                                
|General
      and administrative expense       |  |                                
|Sales and marketing
      expense              |  |                                
|Stock-based compensation expense               |  | $                              

A breakdown of total depreciation and
amortization expense for the three months and year ended December 31, 2016 and
2015 are as follows:

Page 47 of
53

---





|(Expressed in thousands of U.S. dollars)          |  | Three months ended December 31,
|------------------------------------------------- |  | -------------------------------
|Depreciation and amortization expense             |  | 2016                           
|Total depreciation and
      amortization expense |  |                                
|recorded as
    follows:                          |  |                                
|Cost of
      goods sold                          |  | $                              
|Research and product
      development expense    |  |                                
|General
      and administrative expense          |  |                                
|Sales and marketing
      expense                 |  |                                
|Depreciation and amortization expense             |  | $                              
|                                                 
|(Expressed in thousands of U.S. dollars)          |  | Year ended December 31,        
|Depreciation and amortization expense             |  | 2016                           
|Total depreciation and
      amortization expense |  |                                
|recorded as
    follows:                          |  |                                
|Cost of
      goods sold                          |  | $                              
|Research and product
      development expense    |  |                                
|General
      and administrative expense          |  |                                
|Sales and marketing
      expense                 |  |                                
|Depreciation and amortization expense             |  | $                              

EBITDA and Adjusted
EBITDA

These supplemental non-GAAP measures
are provided to assist readers in determining our operating performance. We
believe this measure is useful in assessing performance and highlighting trends
on an overall basis. We also believe EBITDA and Adjusted EBITDA are frequently
used by securities analysts and investors when comparing our results with those
of other companies. EBITDA differs from the most comparable GAAP measure, net
loss attributable to Ballard, primarily because it does not include finance
expense, income taxes, depreciation of property, plant and equipment,
amortization of intangible assets, and goodwill impairment charges. Adjusted
EBITDA adjusts EBITDA for stock-based compensation expense, transactional gains
and losses, asset impairment charges, finance and other income, and acquisition
costs. The following tables show a reconciliation of net loss attributable to
Ballard to EBITDA and Adjusted EBITDA for the three months and year ended
December 31, 2016 and 2015:

|(Expressed in thousands of U.S. dollars)        |  | Three months ended December 31,
|----------------------------------------------- |  | -------------------------------
|EBITDA and Adjusted EBITDA                      |  | 2016                           
|Net income (loss)
      attributable to Ballard |  | $                              
|Depreciation and amortization                   |  |                                
|Finance expense                                 |  |                                
|Income taxes                                    |  |                                
|EBITDA attributable to
      Ballard            |  | $                              
|Stock-based compensation expense                |  |                                
|Acquisition and
      integration costs         |  |                                
|Finance
      and other (income) loss           |  |                                
|Gain on sale of
      intellectual property     |  |                                
|Loss on sale of
      assets                    |  |                                
|Adjusted EBITDA                                 |  | $                              

Page 48 of 53

---





|(Expressed in thousands of U.S. dollars)        |  | Year ended December 31,
|----------------------------------------------- |  | -----------------------
|EBITDA and Adjusted EBITDA                      |  | 2016                   
|Net income (loss)
      attributable to Ballard |  | $                      
|Depreciation and amortization                   |  |                        
|Finance expense                                 |  |                        
|Income taxes                                    |  |                        
|EBITDA attributable to
      Ballard            |  | $                      
|Stock-based compensation expense                |  |                        
|(recovery)                                      |  |                        
|Acquisition and
      integration costs         |  |                        
|Finance
      and other (income) loss           |  |                        
|Gain on sale of
      intellectual property     |  |                        
|Impairment charges on intangible assets and     |  |                        
|property, plant and equipment                   |  |                        
|Loss (gain) on sale of
      assets             |  |                        
|Adjusted EBITDA                                 |  | $                      

Adjusted Net LossThis supplemental non-GAAP measure is
provided to assist readers in determining our financial performance. We believe
this measure is useful in assessing our actual performance by adjusting our
results from continuing operations for transactional gains and losses and
impairment losses. Adjusted Net Loss (formerly named Normalized Net Loss)
differs from the most comparable GAAP measure, net loss attributable to Ballard,
primarily because it does not include impairment losses or recoveries on trade
receivables, transactional gains and losses, asset impairment charges, and
acquisition costs. The following table shows a reconciliation of net loss
attributable to Ballard to Adjusted Net Loss for the three months and year ended
December, 2016 and 2015.

|(Expressed in thousands of U.S. dollars) |  | Three months ended September 30,
|---------------------------------------- |  | --------------------------------
|Adjusted Net Loss                        |  | 2016                            
|Net (loss) attributable to
      Ballard |  | $                               
|Impairment loss (recovery) on trade      |  |                                 
|receivables                              |  |                                 
|Acquisition and
      integration costs  |  |                                 
|Gain on sale of intellectual property    |  |                                 
|Loss on sale of
      assets             |  |                                 
|**Adjusted Net Loss**                    |  | $                               
|Adjusted Net Loss per
      share        |  | $                               
|                                        
|(Expressed in thousands of U.S. dollars) |  | Year ended December 31,         
|Adjusted Net Loss                        |  | 2016                            
|Net (loss) attributable to
      Ballard |  | $                               
|Impairment loss (recovery) on trade      |  |                                 
|receivables                              |  |                                 
|Acquisition and
      integration costs  |  |                                 
|Gain on sale of intellectual property    |  |                                 
|Loss on sale of
      assets             |  |                                 
|Impairment charges on intangible         |  |                                 
|assets and property, plant and equipment |  |                                 
|Adjusted Net Loss                        |  | $                               
|Adjusted Net Loss per share              |  | $                               

Page 49 of 53

---





MANAGEMENTS REPORT ON DISCLOSURE
CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure controls and
procedures

Our disclosure controls and procedures
are designed to provide reasonable assurance that relevant information is
gathered and reported to senior management, including the Chief Executive
Officer (CEO) and the Chief Financial Officer (CFO), on a timely basis so
that appropriate decisions can be made regarding public disclosures.

As of the end of the period covered by
this report, we evaluated, under the supervision and with the participation of
management, including the CEO and the CFO, the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act).
The CEO and CFO have concluded that as of December 31, 2016, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified therein,
and accumulated and reported to management to allow timely discussions regarding
required disclosure.

Internal control over financial
reporting

The CEO and CFO, together with other
members of management, are responsible for establishing and maintaining adequate
internal control over the Companys financial reporting. Internal control over
financial reporting is designed under our supervision, and effected by the
Companys board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS.

There are inherent limitations in the
effectiveness of internal control over financial reporting, including the
possibility that misstatements may not be prevented or detected. Accordingly,
even effective internal controls over financial reporting can provide only
reasonable assurance with respect to financial statement preparation.
Furthermore, the effectiveness of internal controls can change with
circumstances.

Management, including the CEO and CFO,
have evaluated the effectiveness of internal control over financial reporting,
as defined in Rules 13a15(f) of the Exchange Act, in relation to criteria
described inInternal ControlIntegrated
Framework(2013)issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this
evaluation, Management has determined that internal control over financial
reporting was effective as of December 31, 2016.

KPMG LLP, our independent registered
public accounting firm, has audited our consolidated financial statements and
expressed an unqualified opinion thereon. KPMG has also expressed an unqualified
opinion on the effectiveness of our internal control over financial reporting as
of December 31, 2016.

Page 50 of
53

---





Changes in internal control over
financial reporting

During the year ended December 31,
2016, we updated the design of our disclosure controls and procedures and
internal controls over financial reporting to include the controls, policies and procedures of
Protonex, which was acquired on October 1, 2015. During the year ended December
31, 2016, there were no other changes in internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. Our design of
disclosure controls and procedures and internal controls over financial
reporting now includes controls, policies and procedures covering both Protonex
and Ballard Power Systems Europe A/S (formerly Dantherm Power A/S).

RISKS & UNCERTAINTIES

An investment in our common shares
involves risk. Investors should carefully consider the risks and uncertainties
described below and in our Annual Information Form which remain substantively
unchanged. The risks and uncertainties described in our Annual Information Form
are not the only ones we face. Additional risks and uncertainties, including
those that we do not know about now or that we currently deem immaterial, may
also adversely affect our business. For a more complete discussion of the risks
and uncertainties which apply to our business and our operating results, please
see our Annual Information Form and other filings with Canadian (www.sedar.com) and U.S.
securities regulatory authorities (www.sec.gov).

A summary of our identified risks and
uncertainties are as follows:

|● | We may not be able to
      successfully execute our business plan;                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | In our Heavy-Duty Motive
      market, we depend on Chinese customers for a majority of our revenues.
      Macro-economic conditions, including government subsidy programs
      and significant and recent volatility in Chinas capital markets, may
      adversely impact our Chinese customers access to capital and program
      plans which could adversely impact our business;
|● | In our Technology Solutions
      market, we depend on a single customer for the majority of our
      revenues;                                                                                                                                                                                                                                                                           
|● | In our Portable Power market,
      defense spending volatility could have an adverse impact on our business;                                                                                                                                                                                                                                                                              
|● | In our Portable Power market, defense
      acquisition process changes could have an adverse impact on our
      business;                                                                                                                                                                                                                                                                
|● | In our Material Handling
      market, we depend on a single customer for the majority of our revenues
      and are subject to risks from  that customers internal stack development and commercialization
      plans;                                                                                                                                                                  
|● | In our Heavy-Duty Motive
      market, a significant amount of operations are conducted by a joint
      venture that we cannot operate solely for our benefit;                                                                                                                                                                                                                            
|● | We expect our cash reserves
      will be reduced due to future operating losses and working capital
      requirements, and we cannot provide certainty as to how long our cash
      reserves will last or that we will be able to access additional capital
      when necessary;                                                                                                       
|● | Potential fluctuations in our
      financial and business results make forecasting difficult and may restrict
      our access to funding for our commercialization plan;                                                                                                                                                                                                                 
|● | We are dependent upon Original
      Equipment Manufacturers and Systems Integrators to purchase certain of our
      products;                                                                                                                                                                                                                                                            

Page 51 of 53

---





|● | We may not be able to achieve
      commercialization of our products on the timetable we anticipate, or at
      all;                                                                                                                                                                        
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | A mass market for our products
      may never develop or may take longer to develop than we
    anticipate;                                                                                                                                                                                  
|● | We have limited experience
      manufacturing fuel cell products on a commercial basis;                                                                                                                                                                                                      
|● | Warranty claims could
      negatively impact our gross margins and financial
performance;                                                                                                                                                                                                    
|● | We could be adversely affected
      by risks associated with acquisitions;                                                                                                                                                                                                                   
|● | We are subject to risks
      inherent in international operations;                                                                                                                                                                                                                           
|● | We depend on our intellectual
      property, and our failure to protect that intellectual property could
      adversely affect our expected future growth and success;                                                                                                                      
|● | We may experience
      cybersecurity threats to our information technology infrastructure and
      systems, and unauthorized attempts to gain access to our proprietary or
      confidential information, as may our customers, suppliers, subcontractors
      and joint venture partners;
|● | Global macro-economic
      conditions are beyond our control and may have an adverse impact on our
      business or on our key suppliers and / or customers                                                                                                                                 
|● | We currently face and will continue to face
      significant competition;                                                                                                                                                                                                                    
|● | We could
      lose or fail to attract the personnel necessary to run our
      business;                                                                                                                                                                                                     
|● | Public Policy
      and regulatory changes could hurt the market for our
products;                                                                                                                                                                                                            
|● | We are dependent
      on third party suppliers for the supply of key materials and components
      for our products and services;                                                                                                                                                           
|● | Exchange rate
      fluctuations are beyond our control and may have a material adverse effect
      on our business, operating results, financial condition and
      profitability;                                                                                                         
|● | Commodity price
      fluctuations are beyond our control and may have a material adverse effect
      on our business, operating results, financial condition and
      profitability;                                                                                                       
|● | We could be
      liable for environmental damages resulting from our research, development
      or manufacturing operations; and                                                                                                                                                            
|● | Our products use
      flammable fuels and some generate high voltages, which could subject our
      business to product liability
claims.                                                                                                                                                   

FORWARD-LOOKING STATEMENTS
DISCLAIMER

This document contains forward-looking
statements that are based on the beliefs of management and reflect our current
expectations as contemplated under the safe harbor provisions of Section 21E of
the United States Securities Exchange Act of 1934, as amended. Such statements
include, but are not limited to, statements with respect to our objectives,
goals, liquidity, sources of capital and our outlook including our estimated
revenue and gross margins, cash flow from operations, Cash Operating Costs,
EBITDA and Adjusted EBITDA (see Non-GAAP Measures) as well as statements with
respect to our beliefs, plans, objectives, expectations, anticipations,
estimates and intentions. Words such as "estimate", "project", "believe",
"anticipate", "intend", "expect", "plan", "predict", "may", "should", "will",
the negatives of these words or other variations thereof and comparable
terminology are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve assumptions,
risks and uncertainties that are difficult to predict.

Page 52 of
53

---





In particular, these forward-looking
statements are based on certain factors and assumptions relating to our
expectations with respect to the generation of new sales, producing, delivering
and selling the expected product and service volumes at the expected prices,
controlling our costs, and obtaining the expected benefits arising from the
Protonex acquisition. They are also based on a variety of general factors and
assumptions including, but not limited to, our expectations regarding product
development efforts, manufacturing capacity, product and service pricing, market
demand, and the availability and prices of raw materials, labour and supplies.
These assumptions have been derived from information available to the Company
including information obtained by the Company from third parties. These
assumptions may prove to be incorrect in whole or in part. In addition, actual
results may differ materially from those expressed, implied, or forecasted in
such forward-looking statements. Factors that could cause our actual results or
outcomes to differ materially from the results expressed, implied or forecasted
in such forward-looking statements include, but are not limited to: the
condition of the global economy; the rate of mass adoption of our products;
changes in product or service pricing; changes in our customers' requirements,
the competitive environment and related market conditions; product development
delays; changes in the availability or price of raw materials, labour and
supplies; our ability to attract and retain business partners, suppliers,
employees and customers; changing environmental regulations including subsidies
or incentives associated with the adoption of clean energy products; our access
to funding and our ability to provide the capital required for product
development, operations and marketing efforts, and working capital requirements;
our ability to protect our intellectual property; risks relating to the
Companys successful integration of Protonex and its operations, such as the
loss of key personnel due to the transaction, the disruption to the operations
of the Company and Protonex respective businesses, the cost of integration
exceeding that projected by Ballard, and the integration failing to achieve the
expected benefits of the transaction; the magnitude of the rate of change of the
Canadian dollar versus the U.S. dollar; and the general assumption that none of
the risks identified in the Risks and Uncertainties section of this report or in
our most recent Annual Information Form will materialize. Readers should not
place undue reliance on Ballard's forward-looking statements.

The forward-looking statements
contained in this document speak only as of the date of this Management
Discussion and Analysis. Except as required by applicable legislation, Ballard
does not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this Management Discussion and Analysis, including the occurrence of
unanticipated events.

Page 53 of 53

---