These also allow for deductions at Tesla's applicable plain vanilla debt rate, which would be much higher than the cash interest rate on the notes (by using a call spread on top of the embedded option). So there's a tax arbitrage as well.
Source: I used to structure and sell these for a living
"In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes."
Source: I used to structure and sell these for a living
"In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes."