Any suggestions on this approach to multiple objects and materials

I have two scenarios I am weighing, trying to find a good approach that won't bring Unity to its knees. This is in a multiplayer environment.

Let's say I have a widget model with two materials. I want people to be able to make copies, customize its appearance by swapping out different materials. You might have green and blue widget, or a green and red widget, or a red and silver widget.

Scenario 1: Create one prefab, and give the model two materials. Players can mix and match the two materials, for each copy. So, my concern is this: From what I understand, because i will be changing out the materials for each item (potentially), each copy of this object will not be batched. People might make DOZENS of these things, or more. Someone might have 20 of these, each one with a different combination of the two materials.

Scenario 2: Only allow specific ones to be made, instead of allowing people to swap out materials. For example, I might only allow people to make a blue and green one, a red and yellow one, and an orange and purple one. Obviously, this is limits variety a LOT, but at least these would be using shared materials, and batched.

Am I correct in my assessment of these two scenarios? Anyone have any thoughts or insight? In an ideal world, I would be able to have unlimited variety and not lose performance, but I don't have that, and I'm trying to find a reasonable compromise. Thanks!