In a large pan, drizzle the olive oil over low heat. Ad the garlic and cook until just fragrant, 30 seconds to 1 minute. Stir in the onions and cook, stirring occasionally, until softened and caramelized to a golden color, about 20 minutes. If getting dark too quickly, adjust the heat lower and stir in about 1/2 tablespoon water as needed.
Add the chorizo pieces and cook until browned, about 2 minutes. Add the potatoes and gently toss to coat in the oil. Cook, gently stirring occasionally, for 10 minutes.
Add the 1 1/2-2 cups water, just enough to cover the potatoes, and stir in the pimentón, salt, and bay leaf. Bring the mixture to a boil, then reduce heat to medium low and simmer for about 20 minutes, until the potatoes are tender and the water has reduced by half into a thick stew.