Brown the onion in the butter in a skillet for 5 minutes or until golden.
Preheat the oven to 400°F.
Let the onion cool and then, using your hands, mix with the beef, egg, crumbs, and chilies in a mixing bowl.
Divide the mixture into 48 small meatballs.
Line a baking sheet with parchment paper and arrange the meatballs on there.
Bake for 20 to 25 minutes, until cooked through.
Meanwhile, you can make the sauce. Melt the butter in a pan on the stove.
Stir in the flour and cook for a couple of minutes or until it smells toasty.
Next whisk in the milk and keep whisking for a couple of minutes, until smooth.
Turn off the heat and stir in the cheese.
Serve the meatballs with the warm cheese sauce.