What happened

Aerospace start-up Lilium (LILM 3.73%) provided a financial update this week, and it served as a reminder to investors about how much risk remains in the race to launch a small, battery-powered plane that some have likened to a flying car. The news caused investors to back away from a number of companies pursuing a similar goal.

Shares of Lilium, Archer Aviation (ACHR 10.50%), and Joby Aviation (JOBY 6.44%) were all down about 15% for the week as of late Thursday, according to data provided by S&P Global Market Intelligence.

So what

They might not quite live up to the expectations of The Jetsons, but a form of a flying car is edging toward becoming a reality. Lilium, Archer, and Joby are all developing electric vertical take-off and landing (eVTOL) aircraft designed to take off from anywhere and transport as many as a dozen passengers over short distances.

These plane/helicopter hybrids will not replace long-haul commercial aviation any time soon, but airlines see them as a way to carry passengers from outer suburbs to major airports, and consumers could one day use them to fly over rush hour traffic.

There's great promise here but also great risk. For one, the sheer number of companies pursuing the opportunity suggests that there will be winners and losers in the sector. And while the designs are feasible, and some of these companies have demonstrated successful prototypes, each newcomer faces a long and arduous road to win regulatory approval before revenues will start flowing in.

Last month, Lilium raised $119 million in a secondary offering, and this week the company laid out why that effort was so important. The company burned through 69 million euros in the third quarter after spending 63 million euros in the prior period, and had just 160 million euros on the books before the capital raise.

There is little to suggest the cash burn will slow any time soon. Joby last month pushed the date of its expected launch into 2025, citing regulatory delays. Joby is thought to be among the furthest along in bringing a plane to market, and the market read its delays as a sign that no one will get through the process quickly.

Lilium's update this week was met by a number of analyst price target cuts. The cautionary talk of a protracted timetable and the possible need for even more capital raises spooked investors in a number of companies.

Now what

There is great potential in these designs. Although current battery chemistries make long-range electric aircraft unfeasible, the eVTOL is a relatively proven concept that shows promise in eliminating vehicle, helicopter, and small-plane emissions, and could open up a whole new transportation category.

But as investors were reminded this week, there is great risk here as well. There is no guarantee all of these companies will ever generate revenue, and even if all of these planes make it to market, there is risk that one or two designs will ultimately win out over competitors. There could easily be eVTOL stocks that end up as zeros.

These stocks are best reserved for investors with a longtime horizon and as a more speculative part of a well-diversified portfolio.