Tesla Motors Inc (NASDAQ:TSLA) announced that it is offering $1.6 billion worth of convertible senior note in an underwritten registered public offering.

According to the electric car manufacturer, it will use the proceeds from the offering to finance the development of its planned Gigafactory, development and production of its “Gen III” mass market vehicle, expansion of its business in the United States, and other general corporate purposes.

Tesla Motors Inc (NASDAQ:TSLA) said it is offering $800 million worth of convertible senior notes due on 2019, and another $800 million convertible senior notes due on 2022.

The electric car manufacturer said the 2019 convertible senior notes will be convertible into cash, shares of Tesla Motors Inc (NASDAQ:TSLA) common stock, or a combination of cash and stock depending on its prerogative.

The 2022 convertible senior notes is also convertible into cash, and/or shares of Tesla Motors Inc (NASDAQ:TSLA) common stock if applicable and subject to the right of the electric car manufacturer to deliver cash in connection of such shares.

The company will still determine the interest rate, conversion rates, and other terms of the convertible senior notes. Tesla Motors Inc (NASDAQ:TSLA) said it will grant underwriters an option to buy as much as $120 million worth of its 2019 convertible senior notes and another $120 million worth of its 2022 convertible senior notes within 30 days

Tesla Motors Inc (NASDAQ:TSLA) plans to enter into convertible note hedge transactions and warrant transaction in connection with its offering to prevent dilution of up to around 100% over the common stock price at the time of the pricing of the notes due 2019 and around 120% over the common stock price at the time of pricing of the notes due 2022.

The electric car manufacturer said it will use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions and warrant transactions.

In a separate blog post, Tesla Motors Inc (NASDAQ:TSLA) said that it is planning to build a large scale factory to be able to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead.

The electric car manufacturer emphasized that the Gigafactory is designed to reduce cell costs faster than the status quo. It projected that it will produce more lithium ion batteries annually by 2012 compared with the worldwide production last year.

“By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent,” according to Tesla Motors Inc (NASDAQ:TSLA).