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The smoke is caused by oil burning off which is heated by the electrical current flowing through it. The oil has become conductive as it has been mixed with carbon dust from the motor brushes.
The answer is very simple. Dismantle the motor and clean away the oil / carbon material. With this done and the motor re-assembled, 90% of motors come back to full health. A small, half drop of light engineering oil should be applied to the motor bearings.
Another great insight from Scalextric Car Restorations
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