"God is dead" does not mean that Nietzsche believed in an actual "God" who had died literally. Nietzsche is also not saying that atheists are right. Instead, the phrase means that everything built on Christianity will fall apart because "the belief in the Christian God has become unbelievable". He says it is impossible to have a Christian or pseudo-Christian morality without the belief in God. This was a problem he had with many modern sceptics.