Elon Musk: High likelihood that our world is a simulation

Elon musk made the argument that there is 1 in a billion chance that we are not in a simulation here.

The probability logic he used seems incorrect to me. Consider the following two scenarios:

1. You have one blue ball (akin to reality). Then, you create a billion red balls (akin to simulations). After that, you mix them up and randomly select a ball. The likelihood that you selected the blue ball is 1 in 1 billion. This is true.
2. Now, Let’s assume that there is one ball. It doesn’t really know whether it’s truly blue or red (let’s also assume that only those two possibilities exist, the ball cannot be any other color besides red or blue). Absent any other data, it’s difficult to assign any probability to the ball being red or blue . Now, the one ball turns sentient and decides to produce a billion red balls. What is the likelihood that the the one ball is actually red? Still hard to say. Producing the red balls doesn’t change the likelihood of it’s own existential color.

Reality versus simulation is more similar to the second scenario so, it seems incorrect to use Elon’s logic to arrive at the conclusion that the likelihood we are not in a simulation is 1 in 1 billion.

Is there a flaw in this argument? Very interested in knowing what others think.