What happened

Few emerging industries seem more inspired by science fiction than battery-powered personal aircraft. So perhaps it is no surprise that in a market where investors are fleeing from pre-revenue, speculative investments, so-called "flying car" stocks have taken it on the chin.

In August, shares of Vertical Aerospace (EVTL 3.65%) fell 30%, shares of Lilium (LILM -0.41%) lost 19%, and Archer Aviation (ACHR 2.33%) sank by 12%, according to data provided by S&P Global Market Intelligence, as investors kept their focus on safer, more reliable investments.

So what

Vertical, Lilium, and Archer are all developing eVTOLs -- electric airplanes capable of vertical takeoffs and landings. Those three companies, along with peer Joby Aviation (JOBY 2.00%), all joined the public market over the past year via mergers with special-purpose acquisition companies (SPACs) to raise funds to bring their aircraft designs to market.

Certainly eVTOLs won't replace the large jets made by Boeing and Airbus anytime soon, but they could play an intriguing role in our transportation future. These small planes are designed to ferry four to six people on short trips, either bypassing traffic in crowded cities or bringing passengers from outer suburbs and small cities to large, metropolitan airports.

Both Archer and Vertical released their second-quarter results during August, but there was little in those reports to justify their dramatic share price declines. Neither company has much to report in terms of financial results for now, but both said they are making progress in bringing their products to market. Archer did say United Airlines Holdings had paid a $10 million deposit on 100 aircraft that it ordered last year, which would seem to be a positive development.

Alas, investors in August didn't have a lot of appetite for shares of companies that have little to offer beyond great expectations for the future. With the Federal Reserve hiking interest rates to fight high inflation, investors are trying to figure out whether the U.S. and global economies are headed for a recession. A so-called "risk off" climate prevails on Wall Street, and pre-revenue aerospace companies aren't the type of stocks that investors tend to rush into when they are trying to reduce the risk in their portfolios.

Indeed, for all the progress these companies have shown, none of them is certain to reach their destination. Given that eVTOLs are a new category of aircraft, they will likely face significant scrutiny from the Federal Aviation Administration and foreign regulators, which could delay their rollouts and could necessitate additional R&D spending beyond what the manufacturers expect.

And even if the eVTOL market develops as the optimists hope, there are a lot of different companies and different designs chasing an uncertain amount of business. It seems likely that things won't go to plan for all the companies chasing this opportunity, creating an additional layer of risk to buying individual stocks in this space.

Now what

It is fair to say that these are potentially disruptive companies attempting to create an exciting new market. It's also fair to call them highly speculative investments. Even in the best-case scenario, we are likely to see significant turbulence in their share prices from here as these companies not only go through the typical growing pains that pre-revenue companies face, but also endure the vagaries of macroeconomic factors that are beyond their control.

For investors who find the promise of eVTOLS compelling, keep your seat belt fastened and limit stocks like Archer, Vertical, and Lilium to a small part of a well-diversified portfolio.