What happened

A new government plan has raised questions about the timetable for air mobility start-ups to start flying paying customers, and investors are worried. Shares of Joby Aviation (JOBY -5.18%) fell by as much as 18.5% on Wednesday and shares of Archer Aviation (ACHR -4.72%) were down by as much as 11.2% as markets tried to decipher what the news means for these companies. As of 1 p.m. ET, they were still down by 17.3% and 10.3%, respectively.

So what

The era of "flying cars" is close at hand. Though it might not look much like how The Jetsons envisioned it, a number of companies are making progress on developing small electric-powered vertical takeoff and landing aircraft (eVTOL) that can transport passengers above crowded city streets.

New aircraft types require new rules to keep the skies safe, as well as certification from the Federal Aviation Administration (FAA). Joby, Archer, and rivals including Lilium and Vertical Aerospace are all working with the FAA to get their designs certified and airborne, with some investors hoping to see the eVTOLs in commercial service as soon as 2025.

On Tuesday, the FAA published a report that at first glance would appear to put those plans on hold. The agency outlined its "Innovate28" project, which is a process that would integrate air taxis and other advanced air mobility solutions into the national airspace by 2028.

For pre-revenue companies, anything that pushes back the schedule for bringing their offerings to market can be fatal. The stocks sank due to fears that the age of air taxis might not arrive as soon as hoped.

Joby is also falling on a call by JP Morgan that its shares have less upside in the near term than Archer's. The bank downgraded Joby to underweight from neutral, but raised its price target on Archer to $6 from $5, saying that Joby's outperformance to date leaves it with little room to gain altitude for now.

Now what

It is true that the companies' timelines for bringing their aircraft into service are aggressive, and there is a lot of skepticism out there about when these air taxis will take flight and revenue will start to flow in. But Tuesday's selloffs appear to be an overreaction.

Canaccord analyst Austin Moeller said in a note that the FAA plan has nothing to do with the type certification schedule for the likes of Joby and Archer. Former and current FAA officials have repeatedly expressed confidence that these operators can be certified in the 2024 to 2025 time frame. Former acting FAA Administrator Bill Nolen mentioned that timetable in an interview last week.

Investors need to know there is still massive risk here. Experimental aircraft have uncertain paths to certification, and given the large number of companies racing into an unproven market, it's possible that even if the certification process goes as planned, not all of them will be long-term winners.

For investors intrigued by the opportunity, but who also understand the risks, either Archer or Joby could be a good candidate to add to a well-diversified portfolio.