Why do people invest in a preferred stock when the sales terms are not profitable?

You are right, that would be a horrible deal for you.

Which is why only you decide if you want to convert at those bad terms. Not the issuer.

From the prospectus:

Each share of the Series L Preferred Stock will be convertible at any time, at your option, into 32.0513 shares of our common stock (equivalent to an initial conversion price of approximately $31.20 per share of our common stock), [...]

The Series L Preferred Stock is not redeemable by us at any time.

[...] if the closing price of our common stock exceeds 130% of the conversion price for 20 trading days during any consecutive 30 trading day period, [...], we may, at our option, cause some or all of the then outstanding Series L Preferred Stock to be automatically converted into our common stock at the then prevailing conversion rate.

Since no one will ever convert at those conditions, for the issuer this is basically an endless loan for 7.5%, which is their intention.

Your interest rate will depend on the current price of the stock, which will be based on the current (or assumed future) market interest rates and the (assumed) risk of Wells Fargo going bankcrupt.

Prices above 1.300$ for the preferred stocks, which is the minimum value you would get in common stocks when Wells Fargo has the right to convert, may indicate a situation where conversion might be profitable anyway.

Then the price will likely correlate with the common stocks, not the interest rate anymore: paying more than the price of the converted stocks are worth would be risky as Wells Fargo could convert at any time (although the coupon might still have value if Wells Fargo does not convert, so paying a premium for that chance might still be possible), and on the other hand you would not be selling for less than the price of the converted stocks as you could just convert and sell the stocks instead.