Pedaleamos despacio por donde hay baches.

It can be either one, depending on context.

For -ar verbs, the nosotros form is the same in the present and the preterite:

• present: pedaleamos = we pedal / we are pedaling
• preterite: pedaleamos = we pedaled

In this sentence, hay is present tense (there are), so the most natural reading is present:

• Pedaleamos despacio por donde hay baches.
• We pedal / are pedaling slowly where there are potholes.

If the whole sentence were in the past, you would usually expect something like había instead of hay:

• Pedaleamos despacio por donde había baches.

Because Spanish often leaves out subject pronouns when the verb ending already makes the subject clear.

• pedaleamos already tells you the subject is we
• so nosotros pedaleamos is possible, but usually unnecessary

You would add nosotros only for emphasis, contrast, or clarity:

• Nosotros pedaleamos despacio, pero ellos no.
• We pedal slowly, but they don’t.

It comes from pedalear, which means to pedal.

In context, pedaleamos can sound like:

• we pedal
• we are pedaling
• sometimes more naturally in English, we ride our bikes

The verb focuses on the pedaling action, so it is a little more specific than just going by bike.

Because despacio is an adverb, and it modifies the verb pedaleamos.

• despacio = slowly
• lento / lenta = slow as an adjective

So:

• Pedaleamos despacio = We pedal slowly
• Una bicicleta lenta = A slow bicycle

You could also say lentamente, which also means slowly, but despacio is very common and natural in everyday speech.

Por donde means something like:

• through where
• along where
• wherever / in the places where, depending on context

Here, por adds the idea of movement through an area. So:

• donde hay baches = where there are potholes
• por donde hay baches = through the places where there are potholes

That is why por is important. It connects well with movement verbs like pedalear, caminar, pasar, ir, etc.

Because it is not a question word here.

Use dónde with an accent in direct or indirect questions:

• ¿Dónde hay baches?
• No sé dónde hay baches.

Use donde without an accent in statements and relative clauses:

• Pedaleamos por donde hay baches.

So here, it means where / where there are, not where?

Because hay is an impersonal form of haber, and it does not change for singular or plural.

So Spanish says:

• hay un bache = there is a pothole
• hay baches = there are potholes

Even with a plural noun, it stays hay.

This is very important because learners often want to make it plural, but standard Spanish does not do that.

Because Spanish often leaves out the article when talking about the existence of things in a general or indefinite way.

• hay baches = there are potholes / there are some potholes

If you said los baches, you would be talking about specific potholes already known in the conversation.

So in this sentence, baches is general and indefinite, which is why no article is needed.

Baches is the plural of bache, which commonly means pothole in a road or street.

So:

• un bache = a pothole
• baches = potholes

In this sentence, it tells you why the speaker is going slowly.

Yes. That is grammatically correct.

• despacio = very common, everyday, natural
• lentamente = also correct, but a little more formal or literary in tone

In normal conversation, many speakers would prefer despacio.

Not with exactly the same meaning.

• donde hay baches focuses on location: where there are potholes
• por donde hay baches focuses on movement through that area

Since pedalear involves movement, por donde is a very natural choice.

Compare:

• Hay barro donde hay baches.
  There is mud where there are potholes.

• Pedaleamos por donde hay baches.
  We pedal through where there are potholes.

Yes, somewhat, but the original order is natural.

• Pedaleamos despacio por donde hay baches. is clear and idiomatic.

You could also hear:

• Pedaleamos por donde hay baches despacio.

But that sounds a little less natural, because despacio usually comes closer to the verb it modifies.

So the original sentence is a very good standard order:

1. verb
2. adverb
3. prepositional phrase